China’s Renewed COVID Lockdowns Roil Global Stocks and Commodities

The potential spread of strict COVID-19 lockdowns in China has led to major routes in global stocks and commodities.  

The Chinese government has ordered that residents in the Beijing district of Chaoyang undergo testing for COVID three times this week, due to concerns over the potential for a re-flaring of the disease in the national capital.  

Chaoyang is the largest district in Beijing, with a population of around 3.45 million people. The district lies at the core of the city, housing Beijing’s central business district as well as key commercial, shopping and entertainment areas.  

Given the Chinese government’s recent decision to reimpose strict COVID-19 lockdowns in Shanghai at the start of April, the testing order led to heightened fears that similar restrictions could spread to the very heart of China’s capital city.  

Beijing residents were the first to respond to these fears, with a wave of panic buying hitting the city’s supermarkets. The panic purchases likely received impetus from the inadequacies of the Shanghai authorities to properly supply residents during that city’s now four-week lockdown.  

International investors also keenly felt concerns over the potential for more COVID lockdowns from Beijing, leading to major routs on both the Chinese and global stock markets in Monday trading. 

China’s CSI 300 index dropped by 4.9%, for its largest one-day decline since February 2020, when the COVID pandemic had just commenced and at the outset of lockdown measures in major cities.  

The Monday decline left the Chinese benchmark at its lowest level since May 2020, with tech companies, industrial groups and raw resource producers amongst those hardest hit.  

Markets outside of mainland China also saw sharp declines. In the Asia-Pacific, Hong Kong’s Hang Seng index dropped 3.7% and the Australian S&P/ ASX index lost 1.5%.  

Further away in London the FTSE 100 index shed 1.9%, falling 141 points to an over five-week low of 7380.5 points. Shares worst affected were resource and energy firms, heavily exposed to any declines in China’s demand for commodities.  

These included mining titan Anglo American, which fell 6.85% on Monday; oil and gas supermajor BP, which shed 6.2%, and commodities giant Glencore, which posted a 5.6% drop.  

Oil prices also sank at the start of the week, falling below $100 a barrel on a range of factors, chief among them  Chinese lockdown concerns. The prospect of higher US interest rates also played a role in oil’s decline, as they will increase the price of the greenback, and thus the cost of dollar-denominated commodities such as oil.  

This slew of declines demonstrates the interconnectedness of the modern globalised marketplace as well as the international clout of the Chinese economy. Events and decisions made in China are now having a major impact on markets around the world with remarkable haste.  

For this reason, investors will need to keep a close eye on developments in China’s handling of the COVID pandemic, as well as related monetary and fiscal policies. 

The Chinese Communist Party’s (CCP) Central Financial and Economic Affairs Commission flagged increased infrastructure spending at the meeting convened by Xi Jinping on Tuesday. The move will provide much support to the market, helping to compensate for the negative impact of renewed lockdowns.