China’s markets are slowing as Covid cases hit all provinces, factory output continues to shrink


Investors’ mood was also hit by new official data from China showing that factory activity in the world’s second largest economy continued to contract after strict Covid lockdowns and a record heat wave.
The benchmark of mainland China Shanghai Composite Index (SHCOMP) tumbled as much as 1.3% but reduced losses to 0.3% in the afternoon. The tech-heavy Shenzhen Component Index fell 0.8%.
Japanese Nikkei 225 (N225) also fell by 0.5%. Hong Kong’s benchmark Hang Seng Index (HSI) and Koreas Kospic (COSPIA) both reversed previous losses, up 0.6% and 0.8% respectively.
Chinese manufacturer of electric cars and batteries BYD (BYDDF) fell 8% in Hong Kong, after Warren Buffett Berkshire Hathaway (BRKA) said in a filing that it had sold about 1.33 million Hong Kong-listed shares of BYD for 370 million Hong Kong dollars ($47 million).
Berkshire’s stake in BYD has fallen after the sale to 19.92% from 20.04%. The news followed weeks of speculation that Buffett could give up the largest homegrown EV maker in China, which Tesla is hot on its heels.

The losses in Chinese stocks came as the country has been battling an intense wave of Covid outbreaks. All mainland Chinese provinces have identified locally transmitted cases of Covid-19 in the past 10 days, according to CNN’s calculations based on data from the National Health Commission.

The rapid spread of cases has raised concerns about more lockdowns. Earlier this year, China had placed Shanghai and other major cities under strict months-long lockdowns, which had hammered consumer activity and disrupted global supply chains.

Earlier this week, authorities in Shenzhen, the country’s technology hub, closed down Huaqiangbei’s largest electronics market in the world and shut down public transportation nearby in response to a small number of Covid cases.

“The implementation of virus restrictions in different parts of [China’s] major cities continue to emphasize their struggles in controlling spreads,” said Yeap Jun Rong, a market strategist at IG Group, adding that Beijing’s tough stance on zero-Covid means the country’s growth prospects could remain subdued.

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Also troubling for investors is the news that China’s massive manufacturing industry continued to shrink in August during the country’s worst heat wave in six decades.

A government survey released Monday found that the manufacturing purchasing managers’ index rose to 49.4 in August from 49 in July, but remained in contraction territory. The 50-point figure separates shrinkage from growth.

“Economic activity remained weak in August, partly due to power shortages caused by heat waves,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note Wednesday.

A record heat wave and drought have swept south China in the past month, causing power outages in core industrial areas and the factory operations of several international companies, such as Tesla (TSLA) and Toyota.

The power crisis has eased this week as energy supplies for industrial users in Sichuan and Chongqing have recovered. But the main impediment to the economy — the zero-covid policy — has not been removed, analysts warned.

“The disruption from the power shortages is now easing,” but the COVID situation “is deteriorating again,” Julian Evans-Pritchard, senior China economist for Capital Economics, wrote in a report on Wednesday.

“For now, the resulting disruption seems modest, but the threat of harmful lockdowns is increasing,” he said.

– CNN’s Beijing office and Simone McCarthy contributed to this report.

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