Chinese Equities Takes Hit as Lockdown in Shanghai Deepens Doubts Over Economic Growth

Chinese equities fell as Shanghai extends lockdown to combat fresh new wave of COVID-19 infections, disrupting business and economic operations stalling economic recovery.

The CSI 300 index fell as much as 2% early Monday morning before retreating from loss as the city authorities said it will lock down in two phases to conduct mass testing.

Fresh new lockdown added to uncertainties to the outlook for Chinese equities with investors already grappling with regulatory headwinds of potential delisting of domestic firms from American exchanges as well as systematic risk from war in Ukraine.

“Market will be affected, trading volume will be down as traders focus on the impact on Shanghai’s GDP that’s 4.32 trillion yuan, or 4% of China,” Hao Hong, head of research and chief strategist at Bocom International Holdings Co. said in an email, as reported by Bloomberg.
“Other cities may heed from Shanghai’s tactics to combat the virus spread, and thus the impact on GDP will widen.”

Shanghai’s stock exchange said it will provide online services over IPO approval meetings, consultations and road shows, while also extending the time window for listed companies’ statement releases to 11 p.m.

Earlier this month following a market turmoil Chinese authorities said it would support economy and markets but the government’s zero-covid policy has put pressure on growth.

The CSI 300 Index is down more than 16% this year, the worst-performing national gauge in the region.

“Investors are cautious about economic growth pressure from the further spread of Covid resurgence and the strict measures that could follow to contain the virus.” said Castor Pang, head of research at Core Pacific-Yamaichi Intl HK. “The partial lock down in Shanghai and the potential spread out into other regions will make it even harder for China to achieve the 5.5% GDP growth target, considering this year’s weak starting point.”

However,  Goldman Sachs Group Inc. remains optimistic and maintains an overweight stance on mainland and offshore China stocks, forecasting 22% upside over the next 12 months for the MSCI China Index.