Global stock markets fell sharply on Monday as fears of new lockdowns in China added to concerns over the health of the world economy.
China’s benchmark share index posted its biggest one-day tumble since February 2020, after Beijing’s biggest district began mass testing for Covid-19 because of a rise in infections in the capital.
The CSI 300 index fell by 4.9% to hit its lowest level since late May 2020, as authorities ordered that residents in Chaoyang, home to 3.45 million people, should be tested three times this week. Raw materials producers, technology companies and industrial groups were among the major fallers.
Fears that restrictions will be imposed in Beijing also prompted panic buying at supermarkets, as residents braced for curbs similar to those implemented in Shanghai, where a lockdown has entered its fourth week.
On Sunday, a municipality official warned that Beijing’s outbreak was “spreading stealthily” from unknown sources, and “developing rapidly”.
Concerns that China could impose further lockdowns, slowing its recovery, hit markets across the region, with Hong Kong’s Hang Seng shedding 3.7% and Australia’s S&P/ASX index off 1.5%.
In London, the FTSE 100 index dropped by 141 points, or 1.9%, to 7380.5 points, its lowest close in more than five weeks. Mining stocks and energy firms led the fallers, as new curbs in China could hit demand for metals, coal and oil. Anglo American lost 6.85%, BP fell 6.2% and Glencore dropped 5.6%.
Stocks fell across Europe, with the pan-European Stoxx 600 index losing 1.8% despite relief that Emmanuel Macron had won Sunday’s French presidential election. Wall Street initially added to Friday’s losses, with the S&P 500 down 1% by midday, although it later rallied to close 0.6% higher.
The yield, or interest rate, on UK, US and eurozone government bonds fell, a sign that investors were seeking a safe-haven asset and anticipating slower growth.
“More than two years into the pandemic and Covid is still roiling financial markets,” said Fawad Razaqzada, a market analyst at City Index and Forex.com.
“Concerns about demand have intensified after Beijing locked down parts of Chaoyang district as the virus spread there. This triggered panic as people had hoped that lockdowns would ease in Shanghai rather than more restrictions being imposed elsewhere. But now the prospects of the capital city being put into a full lockdown has unnerved investors worldwide.”
Economists warned that China’s efforts to stick to its zero-Covid strategy could mean further lockdowns, disrupting global supply chains over the coming months, and adding to inflation.
“Without a major overhaul of quarantine rules, the economic damage due to Omicron will likely increase,” predicted Frédérique Carrier, the head of investment strategy in Britain and Asia at RBC Wealth Management. “Premier Li Keqiang has repeatedly warned of growth risks this month, and the State Council and related government departments have ordered local authorities to minimise transportation and logistics disruptions when imposing local quarantines.
“Domestic logistics and port operations disruptions may spill over to regional or global supply chains. In addition, some cities under lockdown in southern and eastern China are manufacturing hubs for electronic products, chips, and electric vehicles. Exports are likely to slow more meaningfully in the coming months.”
Benchmark China iron ore futures dropped almost 11% to the lowest in more than a month, on concerns that demand from the steel industry could weaken. Palladium, used in car catalytic converters, slumped more than 10%.
Oil prices tumbled more than 6%, with Brent crude dropping below $100 ($78.60) a barrel for the first time in almost two weeks.
“The world’s biggest crude importer is heading for the worst oil demand shock since early 2020,” said Ole Hansen, the head of commodity strategy at Saxo Bank. “Supply worries have not suddenly disappeared, with Libyan supply disruptions as well as sanctions and a potential widening ban against Russian crude oil import also lingering. For now, however, the market is in risk-off mode.”
Fears that the US central bank will aggressively raise interest rates this year also hit markets, after signals from several Federal Reserve officials that they will tighten policy to pull down inflation.
The pound dropped 1% to an 18-month low against the US dollar, dipping more than a cent to $1.271.