Growing fears over China’s latest Covid-19 outbreaks on Tuesday unsettled investors, who fear authorities will return to extremely restrictive containment measures that have already dealt a terrifying blow to the world’s second-largest economy this year.
After November started on a rally on easing inflation concerns and signs of a looser approach to the disease, optimism has received a massive boost since the country announced its first virus deaths in six months.
They come as infections rise across the country, and Beijing residents fear leaders will introduce lockdown measures similar to those in Shanghai earlier in the year that lasted for months.
The flare-ups come just a week after China announced it would be rolling back some of the strict Covid rules it has been in place since the pandemic began in 2020, even as the rest of the world has moved on.
Analysts said the latest developments highlight China’s long road in emerging from the crisis as President Xi Jinping firmly adheres to a zero-Covid strategy widely blamed for the country’s economic woes.
“Risk sentiment has been under pressure on questions surrounding China’s reopening,” said Stephen Innes of SPI Asset Management.
“Some investors are convinced that China’s reopening is a formality and catalyzed by the (World Health Organization) downgrading Covid to endemic.
“We know China’s reopening will be riddled with seizures and beginnings as the two step forward one step back routine becomes the norm.”
Hong Kong, which thundered more than 10 percent higher in a three-day surge earlier this month, fell for the fifth straight day, while Shanghai was also lower along with Seoul, Taipei and Wellington.
Still, there were gains in Tokyo, Sydney, Singapore, Manila and Jakarta.
This came after a decline on Wall Street, where trading is lighter than usual due to the Thanksgiving break at the end of the week.
Minutes from the Federal Reserve’s latest policy meeting will be released on Wednesday, scoured for a glimpse of officials’ thinking amid four decades of high inflation and signs of a slowing economy.
Hopes that the bank will start to take its foot off the pedal were boosted by figures earlier this month showing that inflation had slowed more than expected, suggesting a series of rate hikes were beginning to take hold.
Still, several Fed leaders have warned against getting carried away, saying more hikes are needed to get prices under control.
But JPMorgan Chase & Co’s Marko Kolanovic said markets are likely to stumble into the new year and only pick up again if the Federal Reserve takes a more dovish stance on borrowing costs. JPMorgan saw risky assets as trading as “range bound with more pronounced downside risk”.
Tokyo – Nikkei 225: up 0.7 percent at 28,150.50 (pause)
Hong Kong – Hang Seng Index: down 0.9 percent at 17,500.32
Shanghai — Composite: down 0.1 percent at 3,083.51
Euro/dollar: rise to $1.0262 from $1.0245 on Monday
Dollar/Yen: DOWN at 141.79 yen from 142.10 yen
Pound/dollar: rise to $1.1858 from $1.1823
Euro/Pound: DOWN at 86.55p from 86.58p
West Texas Intermediate: up 0.3 percent to $80.30 a barrel
North Sea Brent Crude: up 0.5 percent to $87.84 a barrel
New York – Dow: 0.1 percent down at 33,700.28 (close)
London – FTSE 100: down 0.1 percent at 7,376.85 (close)
— Bloomberg News contributed to this story —