Asia shares skid as Covid-19 surge in China unsettles investors

SINGAPORE – Asian share markets fell along with oil prices on Thursday as soaring Covid-19 cases in China unsettled investors, who have been expecting the world’s second-biggest economy to regather momentum after the relaxation of stringent pandemic curbs.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 1.06 per cent, and was set for a third straight week of losses.

China shares opened 0.4 per cent lower, while Hong Kong’s stock market fell 1 per cent. Japan’s Nikkei dropped more than 1 per cent to a nearly three-month low, while Australia’s resource-heavy S&P/ASX 200 index lost 1.18 per cent.

Singapore’s Straits Times Index was down 0.76 per cent at 11.30am local time.

China’s health system has come under heavy stress since Beijing started dismantling its zero-Covid regime at the start of the month.

On Monday, China announced that it would end quarantine requirements for inbound travellers on Jan 8, and several countries, including the United States and Japan, have made Covid-19 tests mandatory for travellers from China.

Nomura analysts said in a note that there could be significant waves of infection across China, spreading from urban to rural areas, during the nationwide travel rush during Chinese New Year, which falls on Jan 22.

“China may find itself in a difficult situation due to its procrastination on embracing a ‘living with Covid-19’ approach,” Nomura analysts said, noting that the previous zero-Covid policy could have overprotected people, raising the risk of a surge in infections once the controls were removed.

Concerns that central banks’ efforts to tame inflation could lead to an economic slowdown and the uncertainty over how China’s economy will fare following the removal of Covid-19 controls have kept markets subdued.

Markets are now pricing in a 69 per cent chance of a 25-basis point rate hike when the US Federal Reserve holds a policy review in February, and are now looking at US rates peaking at 4.94 per cent in the first half of next year.

The Fed raised interest rates by 50 basis points earlier in December after delivering four consecutive hikes of 75 basis points, but has said it may need to keep higher interest rates for longer.

US Treasury yields have risen as traders attempt to assess the impact of China reopening its economy on the Fed’s rate hike policy.

The yield on 10-year Treasury notes was down 2.2 basis points to 3.864 per cent, not far off the six-week high of 3.89 per cent it hit in the previous session.

The yield on the 30-year Treasury bond was down 2.1 basis points to 3.956 per cent. The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down one basis point at 4.349 per cent.

In the commodities market, US crude fell 0.52 per cent to US$78.55 per barrel and Brent was at US$82.84, down 0.5 per cent on the day. Surging Covid-19 cases in China have raised doubts over a fast recovery in fuel demand in the world’s second-biggest oil consumer.