Rising Covid-19 cases in Beijing fueled worries that the Chinese capital will follow Shanghai and other major cities into lockdown on Monday, sending global equities and oil prices down.
The Shanghai Composite Index (SHCOMP), China’s main stock market index, fell 5.1 percent to a 22-month low. It was the index’s worst day since February 3, 2020, when the country’s stock market was devastated by the first coronavirus epidemic.
In other parts of the area, the Hang Seng Index (HSI) in Hong Kong lost 3.7 percent. The Nikkei (N225) in Japan fell 1.9 percent, while the Kospi (KOSPI) in Korea fell 1.7 percent.
On Monday, European equities began substantially down as well. In London, the FTSE 100 (UKX) sank 2.1 percent, while Germany’s DAX (DAX) dropped 1.5 percent. Despite market relief after President Emmanuel Macron’s election victory over far-right contender Marine Le Pen, France’s CAC 40 (CAC40) fell 2.2 percent.
The decline in Asian and European markets followed a gloomy afternoon for US equities on Friday. Following comments from Federal Reserve chairman Jerome Powell regarding probable fast interest rate rises, the Dow dropped 980 points, or 2.8 percent. The S&P 500 and Nasdaq both fell more than 2.5 percent.
Concerns over China’s deteriorating Covid-19 situation are contributing to the bearish trend. Dow futures were down 305 points, or 0.9 percent, on Monday, while S&P 500 and Nasdaq futures were also down 1%.
Beijing, China’s capital with a population of 21 million people, began mass testing and locked off residential compounds over the weekend, sparking fears that more harsh restrictions may be imposed in the near future in line with other Chinese cities.
“Omicron’s arrival in Beijing would be an unsettling development,” said Jeffrey Halley, senior market analyst for Oanda, on Monday. “Although certain sections of China have been under limitations for longer than Shanghai, Omicron’s entry in Beijing would be an ominous event.”
“China is the world’s second-largest economy,” he continued, “and it has showed no evidence of wanting to live with the virus.” “With that in mind, the most likely pressure valve will be a breakdown in China’s export machine, as well as a collapse in consumer confidence.”
On Monday, oil prices fell as concerns about quicker US rate hikes and China’s downturn impacted on mood. US oil futures and Brent crude, the worldwide benchmark, both dropped more than 4%.
“It appears that China is the elephant in the room,” Halley said, “and markets believe that a slowdown in China’s economy might dramatically alter the supply/demand equilibrium on foreign markets.”
The urgency to limit the epidemic in Beijing is increasing as the number of cases in Shanghai continues to rise. Shanghai’s lockout has already prompted numerous industries to halt operations and exacerbated shipping delays, threatening to wreak havoc on the city’s massive economy and put more strain on global supply lines.
On Sunday, Shanghai reported almost 19,000 new cases and 51 deaths.