Asia report: Stocks tumble in China as Covid concerns grow

Markets were in a mixed state at the end of Tuesday in Asia, with bourses in China tumbling as Covid-19 concerns continued.

In Japan, the Nikkei 225 was up 0.41% at 26,700.11, as the yen strengthened 0.26% on the dollar to last trade at JPY 127.81.

Robotics specialist Fanuc was down 0.29%, while among the benchmark’s other major components, Uniqlo owner Fast Retailing was ahead 0.29% and tech investing giant SoftBank Group bounced 4.13%.

The broader Topix index managed gains of 0.11% by the end of trading in Tokyo, settling at 1,878.51.

On the mainland, the Shanghai Composite was down 1.44% at 2,886.43, and the smaller, technology-centric Shenzhen Composite was 2.11% lower at 1,752.28.

The growing outbreak of Covid-19 in China was dragging on sentiment, as mass testing was expanded on Tuesday in the capital Beijing.

Its central bank also published comments it made in an interview with the Financial Times, responding to “fluctuations” in China’s stock markets recently.

“At present, my country’s economic fundamentals are sound, the potential for endogenous economic growth is huge, and substantial progress has been made in preventing and defusing financial risks,” the comments in English, attributed to the People’s Bank of China, read.

The bank said it would increase economic support, focussing on industries being seriously affected by the outbreak and lockdown restrictions.

CMC Markets chief market analyst Michael Hewson said concerns about a global economic slowdown were being driven by the rising covid infections in China.

“China’s strict zero-covid policy, is raising concern that the Chinese government will struggle to get anywhere close to its 5.5% GDP target this year,” he noted.

“The increased transmissibility of Omicron always made the prospect that a zero-Covid policy was likely to fail with Australia and New Zealand admitting defeat on it by throwing in the towel.

“For China however it could be the least bad option given the vulnerability of their health care system to rising cases, which means we could see city wide lockdowns that last for weeks on end.”

Hewson said it was those concerns that appeared to have driven Monday’s move lower, along with a sharp decline in commodity prices.

“On the plus side, these concerns over demand destruction could well offer a welcome respite for hard pressed consumers in the form of lower fuel prices at the pumps, after Brent crude prices fell below $100 a barrel yesterday.”

South Korea’s Kospi rose 0.28% to 2,668.31, while the Hang Seng Index in Hong Kong was 0.33% firmer at 19,934.71.

Anglo-Asian banking giant HSBC slid 4.16% in the special administrative region, after it reported a 28% fall in first quarter pre-tax profit to $4.2bn.

That was still above the $3.72bn that had been pencilled in by analysts polled by Reuters, however.

“HSBC has opened the banks’ reporting season in unspectacular fashion, with the return of loss provisions an unfortunate highlight,” said Interactive Investor head of markets Richard Hunter.

“Although largely expected, the news that credit impairment provisions are back is the major drag on profits.”

Hunter noted that in the same quarter last year and after the effects of the pandemic had been less severe than forecast, HSBC released $435m of impairments.

This year it had taken a charge of $642m, with the $1bn swing being the major factor for lower profits.

“The charge largely relates to deteriorating economic situations in both Russia and China, with general inflationary pressures leading the bank to caution on the likelihood of defaults.”

Seoul’s blue-chip technology stocks were mixed, with Samsung Electronics down 0.3%, while SK Hynix jumped 2.78%.

Oil prices were lower as the region went to bed, with Brent crude futures last down 0.82% on ICE at $101.48 per barrel, and West Texas Intermediate losing 1.2% on NYMEX to $97.36.

In Australia, the S&P/ASX 200 was down 2.08% at 7,318.00, while New Zealand’s S&P/NZX 50 was 0.8% lower at 11,813.18, both having returned from a public holiday on Monday.

The down under dollars were both stronger on the greenback, with the Aussie last ahead 0.37% at AUD 1.3878, and the Kiwi advancing 0.17% to NZD 1.5076.