Asian stocks were on the back foot again on Tuesday as the outlook darkened for growth in China over the predicted long-term impact of Beijing’s harsh ‘Zero-Covid’ policies.
A strong Wall Street rally failed to change the mood in Asia and even Beijing’s pledge of policy support for its struggling economy had little effect.
Beijing’s latest support package, which includes more than 140 billion yuan ($21 billion) in additional tax rebates, bringing the total amount of tax relief this year to 2.64 trillion yuan, couldn’t lift the spirits as new Covid-19 curbs in the country’s capital fuelled worries over slowing growth.
Banks Slash China Forecasts
Investment banks have slashed their forecasts for the world’s No-2 economy and Chinese shares fell with tech and industrials firms leading a deepening slump in afternoon trade.
The Shanghai Composite index ended down 2.41% at 3,070.93, posting its biggest drop since April 25. The blue-chip CSI300 index was down 2.34%, its biggest drop since May 6.
Tech firms, which have led a market rebound since late April, fell sharply. The CSI Info Tech index slipped 4.23% and Shanghai’s tech-focused STAR50 index dropped 4.73%.
Hong Kong stocks closed lower over concerns about China’s economy and the Hang Seng Index slumped 1.75%, or 357.96 points, to 20,112.10, extending the previous day’s losses. The Shenzhen Composite Index on China’s second exchange slid 3.62%, or 72.28 points, to 1,922.48.
Tokyo stocks ended down too despite that overnight rally on Wall Street. The benchmark Nikkei 225 index fell 0.94%, or 253.38 points, to 26,748.14 while the broader Topix index slipped 0.86% or 16.31 points to 1,878.26.
Indian stocks slipped with Mumbai’s signature Nifty 50 index down 0.55%, or 89.55 points, to close at 16,125.15.
Seoul was off 1.6%, while Taipei, Sydney, Singapore and Manila were all lower. Bangkok was flat while Jakarta gained.
Dollar Index Weakens
Globally, shares slid as disappointing company earnings and fears about slowing growth punctured the mini-rally of the last few trading days.
Nasdaq futures lost 2%, with traders blaming an earnings warning from Snap, which saw shares in the Snapchat owner tumble 28%, while S&P 500 futures slipped 1.25%.
That followed a 1.2% fall in MSCI’s broadest index of Asia-Pacific shares outside Japan, while the benchmark STOXX index of European shares fell 0.92%.
The dollar index, which tracks its performance against a basket of major currencies, meanwhile fell 0.3% to 101.81, a one-month low.
Markets had taken some comfort from US President Joe Biden’s comment on Monday that he was considering easing tariffs on China, and from Beijing’s ongoing promises of stimulus.
Covid’s China Damage
But China’s zero-Covid policy and its lockdowns have already done considerable economic damage.
“Following disappointing April activity data, we have downgraded our China GDP forecast again and now look for 2Q GDP to contract 5.4% annualised, previously ‒1.5%,” warned analysts at JPMorgan.
“Our 2Q global growth forecast stands at just 0.6% annualised rate, easily the weakest quarter since the global financial crisis outside of 2020.”
Japan’s manufacturing activity grew at the slowest pace in three months in May amid supply bottlenecks, while Toyota announced a cut in its output plans.
Analysts have also been trimming growth forecasts for the United States given the Federal Reserve seems certain to hike interest rates by a full percentage point over the next two months.
The hawkish message is likely to be driven home this week by a host of Fed speakers and minutes of the last policy meeting due on Wednesday.
Tokyo – Nikkei 225 > DOWN 0.94% at 26,748.14 (close)
Hong Kong – Hang Seng Index > DOWN 1.75% at 20,112.10 (close)
Shanghai – Composite > DOWN 2.41% at 3,070.93 (close)
London – FTSE 100 > DOWN 0.57% at 7,470.84
New York – Dow > UP 1.98% at 31,880.24 (Monday close)
- Reuters with additional editing by Sean O’Meara