Hong Kong leads losses in Asia on renewed China Covid fears

November 20, 2022
9:52 pm

AFP NewsNetwork

Hong Kong leads losses in Asia on renewed China Covid fears

Asian markets fell on Monday as China’s first Covid death in six months sparked fears officials would reintroduce tough, economically painful restrictions to combat outbreaks across the country.

The news threw a spanner in the works for investors hoping for a phased reopening after Beijing eased a raft of anti-virus measures earlier this month.

The death of an 87-year-old man in Beijing on Sunday came as infections surged across the country, testing authorities’ plans to relax their grip by reducing quarantine periods for foreigners and canceling mass testing.

Beijing has locked some residents in their homes and sent others to quarantine centers in recent days.

The measures dealt a particular blow to Hong Kong’s Hang Seng, which fell more than 2 percent, extending a sell-off late last week and feeding further into a recent massive rally. Shanghai was down.

“It feels like one step forward and two back,” said Willer Chen of Forsyth Barr Asia.

“It’s super hard to reopen on short notice as winter is coming and cases are at super high levels and spreading across the country.”

There were also losses in Tokyo, Sydney, Seoul, Singapore, Taipei and Manila. Kuala Lumpur fell with the ringgit after Malaysia’s election ended without a clear winner, fueling uncertainty in the country.

Regional investors dismissed a positive end to last week for US and European markets as attention turns to minutes of the Federal Reserve’s latest monetary policy meeting, to be released later in the week.

Global markets enjoyed a broadly healthy November thanks to signs of easing in China and signs of slowing US inflation, fueling optimism that the Fed was beginning to slow the pace of its rate hikes.

Well below forecasts, consumer and wholesale indices indicated that months of severe tightening measures were finally seeping through the economy and showing results, allowing for a less hawkish Fed.

But several officials were soon lining up to warn that more needs to be done to bring inflation back down to more bearable levels from four-decade highs.

Soaring interest rates and elevated inflation have sent shivers through stock markets this year as investors fear they will plunge the US economy into recession.

In recent comments, Atlanta Fed chief Raphael Bostic said he saw borrowing costs hit 5 percent — from their current level of about 4 percent — before holding.

Boston Fed Chair Susan Collins remained open to options for the next rate hike — including a fifth straight 75 basis point hike.

However, National Australia Bank’s Tapas Strickland said: “This comment in itself sounds hawkish, but Collins was more cautious overall and also expressed confidence that policymakers can tame inflation without doing too much damage to employment.

“Instead, that comment was likely to come after a bevy of Fed spokesmen throughout the week, giving it a hawkish tinge.”

While sentiment among traders remains not very good, there seems to be a sense that there is some light at the end of the tunnel.

“Whether it’s the time of year or the uncertainty of recession, few seem inclined to chase the risk rally,” said Stephen Innes of SPI Asset Management.

“Nevertheless, there is a growing realization that the widespread view of recession and earnings downgrades may be tempered by falling inflation.

“A lower dollar, lower volatility and a recognition of the need to buy early could improve the risk outlook.”

And Bokeh Capital Partners’ Kim Forrest added that 10-year government bond yields had fallen since late October, showing “a declining inflationary environment”.

“The bond market is a little smarter in terms of what the Fed needs to do and will do. He told us that the Fed probably won’t be able to, and doesn’t have to, raise rates to 5 percent,” she told Bloomberg Television.

Demand concerns caused by China’s Covid woes pushed oil prices further down, with both major contracts down after falling last week.