HONG KONG – Asian stocks retreated today on concerns over the impact of China’s Covid-19 restrictions on the world’s second-largest economy as investment banks slashed growth forecasts.
A strong rally on Wall Street, where the Dow closed 2.0% higher, did not carry over to Asia, and Beijing’s announcement of a fresh raft of measures to stimulate the economy did little to calm nerves.
The package announced yesterday includes more than 140 billion yuan (RM92.2 billion) in additional tax rebates, bringing the total amount of tax relief this year to 2.64 trillion yuan, Xinhua news agency reported following a meeting of the State Council chaired by Premier Li Keqiang.
China’s economy has taken a hit from Beijing’s zero-Covid-19 approach to the pandemic, which has resulted in lengthy lockdowns of major cities and mass testing of millions of people.
Prolonged virus lockdowns have constricted supply chains, dampened demand and stalled manufacturing.
Investment banks UBS Group and JPMorgan Chase cut their China economic growth forecasts due to the impact of the coronavirus strategy.
UBS today cut its 2022 GDP growth forecast to 3.0% from 4.2% while JPMorgan yesterday trimmed its forecast to 3.7% from 4.3%, Bloomberg News reported.
“The lingering restrictions and lack of clarity on an exit strategy from the current Covid-19 policy will likely dampen corporate and consumer confidence and hinder the release of pent-up demand,” UBS economists including Tao Wang wrote in a research note, according to Bloomberg.
China has targeted full-year growth of around 5.5%, but data published in April showed that first-quarter growth slowed to 4.8% after its economy lost steam in the latter half of last year.
Concerns over the economic fallout from China’s dogged pursuit of a zero-Covid-19 approach and its knock-on impact on supply chains and the wider global economy spooked investors, with Asian markets well into the red today.
Tokyo lost 0.9% and Shanghai closed 2.4% lower while Hong Kong slipped 1.8%.
Seoul dropped 1.6%, while Taipei, Sydney, Singapore, Bangkok, Kuala Lumpur and Manila were all lower. Jakarta was the sole Asian market in the green.
The sell-off continued in Europe, with London down 0.8%, Frankfurt off 0.9%, and Paris 1.3% lower.
Later in the week, investors will be eyeing the minutes from the latest Federal Reserve rate-setting meeting for clues about further hikes aimed at reining in inflation. A raft of economic figures will also provide insights into the state of the US economy.
“The contradictory signals pouring into markets from all directions mean we can expect to see plenty of volatility across asset classes in the weeks ahead, even if we don’t get a thematic directional move,” said Oanda senior market analyst Jeffrey Halley.
“I’m still not sure how that environment is going to be constructive for equities though.”
Concerns over the Chinese economy and its impact on oil demand sent both contracts sharply lower, with Brent falling 1.4% to below US$112 and WTI also down 1.4% to below US$109. – AFP, May 24, 2022
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