Covid outbreak: China shares hit four-week low as cases spread and production cuts

Investor sentiment was also weighed down by new official data from China, which showed that manufacturing activity continues to contract in the world’s second-largest economy after stringent Covid restrictions and record heatwaves.
Mainland China reference Shanghai Composite Index (SHKOMP) fell 0.8% to close at its lowest level in four weeks. So far this year, the index has fallen nearly 12%.

The Shenzhen Tech Components Index also fell 1.3% to its lowest level in more than two months.

Japan Nikkei 225 (N225) lost 0.4%. Hong Kong benchmark Hang Seng Index (HSI) was flat. But Korean cospi (COSPI) won back previous losses and closed with an increase of 0.9%.
Chinese manufacturer of electric vehicles and batteries BYD (BDDF) fell 8% in Hong Kong after Warren Buffett Berkshire Hathaway (BRKA) the statement said it sold about 1.33 million Hong Kong-listed BYD shares for HK$370 million ($47 million).
Berkshire’s stake in BYD drops after sale to 19.92% from 20.04%. The news follows weeks of speculation that Buffett may be dropping China’s biggest domestic electric car maker, which is treading on Tesla’s heels.

The loss of Chinese stocks comes as the country battles an intense wave of Covid outbreaks. Local cases of Covid-19 infection have been identified in all provinces in mainland China over 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 new lockdowns. Earlier this year, China imposed severe restrictions for several months in Shanghai and other key cities, disrupting consumer activity and disrupting global supply chains.

Earlier this week, authorities in Shenzhen, the country’s technology hub, closed the world’s largest electronics market, Huaqiangbei, and suspended nearby public transport due to a low number of coronavirus cases.

“Introduction of virus restrictions in several parts [China’s] Major cities continue to highlight their fight against spread containment,” said Yip Jun Rong, market strategist at IG Group, adding that Beijing’s tough zero-Covid stance means the country’s growth outlook can remain subdued.

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Investors were also upset by the news that China’s massive manufacturing industry continued to contract in August amid the worst heat wave in the country in six decades.

A government survey released on Monday showed that the manufacturing purchasing managers index rose to 49.4 in August from 49 in July, but remained in contraction territory. A mark of 50 separates contraction 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.

Record heat and drought swept through southern China last month, causing power outages in industrial centers and disrupting several international businesses such as Tesla (TSLA) and Toyota.

The energy crisis eased this week as power was restored to industrial consumers in Sichuan and Chongqing. But the main constraint on the economy — the zero-Covid policy — has not been lifted, analysts warn.

“Disruptions due to power shortages are now receding,” but the Covid situation is “getting worse again,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a report Wednesday.

“At this point, the disruptions it causes seem modest, but the threat of disruptive lockdowns is growing,” he said.

– CNN Beijing Bureau and Simone McCarthy contributed to this report.

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