Covid/China: fear of infection continues to worry world markets

If you think the spread of Covid-19 is over, think again. The number of people infected with the coronavirus in China has more influence on the markets than the comments of US central bankers.

The impact of China’s zero-Covid policy, which was once largely limited to local stocks, is once again spreading to global markets. Many investors had hoped that China was ready to reopen, but the worst-case scenario could soon materialize.

The number of cases in the capital has reached a new record. Beijing closed public spaces such as malls and parks on Tuesday, and many other Chinese cities resumed mass testing for Covid. The number of national cases is approaching the daily infection record of the year.

Beijing has warned that it is facing the worst test of the epidemic. This is worrying as such warnings have previously preceded strict lockdowns. Restrictions are currently in place in more than 40 Chinese cities. According to analysts’ estimates, these would affect nearly one fifth of the total manufacturing industry production.

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An even bigger problem is that Guangzhou is the epicenter of the latest wave of new cases. The southern metropolis is the manufacturing center of the country. In addition, the area is home to factories spanning a number of industries, including electronics, automobiles, telecommunications equipment, and steelmaking, and is referred to as the manufacturing center of the world.

If the current surge in cases were to lead to a city-wide lockdown in Guangzhou similar to the one in Shanghai earlier this year, the disruptions to the global supply chain would exceed those experienced in the past year. Beijing has already ordered a five-day lockdown in Guangzhou’s most populous Baiyun district. The worst-case scenario could cost each affected city more than $1 billion in emissions from China.

Unsurprisingly, shares of U.S. companies with significant exposure to China suffered as new cases reported. Tesla shares lost nearly 7 percent on Monday. Its fast-growing Chinese sales, which accounted for a quarter of total revenue last year, hit a new monthly high in September.

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Hopes that the Fed’s dovish views on inflation may soon be moderated have rekindled interest in global equity and bond markets. But prices for commodities such as crude oil and copper quickly reversed as news of the Chinese shutdown spread. China is the world’s second largest consumer of oil and the most important for refined copper. The fight against Covid will remain the world’s problem for some time.

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