China zero-Covid policy sends chill through global markets

Jack BarnettApril 25, 2022

2 minutes read

Anxiety over the spillover effects on the global economy from China plunging more of its largest cities into lockdown as it ploughs ahead with its zero-Covid policy sent global markets tumbling this morning.

A surge in infections has increased the likelihood of authorities tipping more cities into the most onerous Covid-19 restrictions, including China’s capital Beijing.

Shanghai, one of China’s top exporting centres, has been in lockdown for several weeks, contributing to gumming up supply chains and driving inflation higher in western countries.

The possible move to blanket the country into lockdown drove investors to ditch risky assets to safeguard their portfolios.

London’s premier FTSE 100 index fell more than two per cent, while the mid-cap domestically-focused FTSE 250 index dropped 1.88 per cent.

The selloff extended in currency markets, with the pound tanking to its lowest level against the dollar since September 2020.

The fall has also been driven by a string of downbeat economic data and forecasts released last week intensifying jitters over the health of the UK’s recovery.

Yields on US government debt edged back in a sign that investors increased their holdings of safer assets. Yields move inversely to prices.

Also Read: China’s Economy Grew by 8.1% in 2021: Implications for Nigeria

The sea of red bled into the Continent, underlining the heavy risk-off sentiment among global investors.

The pan-European Stoxx 600 index dropped 1.78 per cent, while Germany’s Dax 30 fell 1.48 per cent.

Paris’s Cac 40 lost over two per cent despite traders’ sentiment toward the country being boosted by incumbent French President Emmanuel Macron being re-elected.

Beijing’s approach to taming Covid-19 runs in stark contrast to most other large economies, which have used vaccinations instead of restrictions on daily life to keep the virus at bay.

China, instead, has continued to use lockdowns as a tool to tame Covid-19, raising concerns over the health of the country’s economy.

Threats of restrictions reaching other large Chinese cities pushed Asian markets lower in overnight trading.

China’s Beijing’s CSI 300 plummeted nearly five per cent, while Hong Kong’s Hang Seng index tumbled 3.73 per cent.

Japan’s Nikkei dropped 1.9 per cent.

Oil prices also dropped due to concerns a slow down in the China economy will hit demand for the commodity.

The world’s top benchmarks, WTI and Brent Crude, fell 4.68 per cent and 4.7 per cent respectively.