Chinese stocks drop on threat of renewed Covid lockdowns

Chinese shares fell as the reintroduction of harsh Covid-19 restrictions at the weekend raised concerns that lockdowns could once again weigh on the growth of the world’s second-largest economy.

China’s benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks dropped about 2 per cent on Monday as spooked investors dumped shares in response to the imposition of measures to halt the spread of new Covid outbreaks.

The emergence of the highly contagious BA.5 Omicron coronavirus sub-variant in mainland China has raised concerns that cities across the country could soon be forced back into stringent lockdowns.

Shares in Chinese developers were among the worst performers in the region on Monday, with the Hang Seng Mainland Properties index falling as much as 5 per cent on concerns that a rush of restrictions could undercut a nascent recovery in consumer confidence that has helped buoy real estate sales in recent weeks.

The latest measures announced by authorities included a mandate for testing more than 6mn residents in the southern Chinese city of Guangzhou and orders for further compulsory testing by authorities in Shanghai, where a two-month lockdown weighed heavily on growth in the second quarter.

Traders were also unnerved after Beijing fined technology groups including Alibaba and Tencent for failing to comply with anti-monopoly regulations.

Hong Kong’s Hang Seng Tech index shed as much as 3.7 per cent on Monday. Alibaba dropped 6.5 per cent, while Tencent declined 3.4 per cent.

Commodity prices fell on fears of demand-constraining lockdowns, with active iron ore contracts in Dalian declining as much as 5.6 per cent. Brent crude, the international oil benchmark, shed 0.7 per cent to trade at $106.31 per barrel.

Futures pointed to a drop of 0.6 per cent for the S&P 500, while the FTSE 100 was expected to fall 1 per cent when trading begins later in the day.

Shares in Macau casino operators were knocked lower after authorities announced that all non-essential businesses would be shuttered for a week from Monday and ordered residents to stay home.

The move sent Hong Kong-listed shares in Wynn Macau down about 8 per cent, with Sands China tumbling almost 9 per cent and MGM China Holdings shedding about 7 per cent.

The city, which is the only place in China where casino gambling is legal, has strictly adhered to China’s zero-Covid policy, adopting a similar health code system for tracking the virus and designating neighbourhoods according to their infection risk level.