28 of China’s 31 provinces have recently seen an outbreak of the highly-infectious Omicron variant of the coronavirus. With over 15,000 infected, this is the largest outbreak China has seen since the initial wave of the virus. The recent outbreak has hit major cities including Shanghai and Shenzhen. Dongguan city, the fifth-largest contributor to China’s economic output, has ordered employees to work from home while locking down residential areas. Industrial areas with reported local cases have also been ordered to stop production. While numbers seem low compared to the rest of the world, analysts say China’s zero-Covid policy will be tested to its limits. Expanded lockdowns threaten an already-strained global supply chain as manufacturers have already begun issuing warnings of shipment delays.
Market Reacts to Positive Outlook on Russian-Ukraine Talks
After negotiations over the weekend, both Russia and Ukraine have given favourable assessments of a possible diplomatic solution to the Russian-Ukraine conflict. Ukrainian negotiator Mykhailo Podolyak has said that Russia has begun to “talk constructively”, while the Russians have said that both delegations could soon draft agreements. More recently, Ukrainian president Volodymyr Zelensky has also said that Russian demands have become “more realistic”. Markets have predictably reacted to the news, with crude and gold prices losing the gains made in the past month. Equities have also rallied at the news, with major US indices closing positive on Tuesday.
Chinese Stocks Stage Massive Rebound
Amid fears that global sanctions against Russia might spread to China due to the two countries’ close relationship, Chinese stocks listed in Hong Kong saw their largest fall since 2008. On Monday, the Hang Seng Enterprise index closed 7.2% lower while the Tech index closed 11% lower. Regulatory worries also gripped the markets, with Tencent dropping 10.2% in the face of a potential fine due to a possible breach of China’s money laundering and privacy rules.
The sell-off would not last for long though, as Hong Kong stocks mounted a massive comeback as the Chinese government denied US claims that Russia was asking China for military assistance. Beijing has said that it would not be implicated in the sanctions against Russia, causing the Hang Seng Index to jump 7.3% at the news, with the Tech Index rising a record 17%.
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