Asian markets sold off particularly hard on Friday after Russia's attack on Ukraine's -- and Europe's -- largest nuclear power plant, with Japanese stocks sinking to their lowest point in more than a year and Hong Kong hitting levels last touched at the start of the pandemic.
The Topix index, a broad reflection of all major stocks trading in Tokyo, fell 2.0% on Friday, which brought it to a level not seen since the end of January 2021. The Nikkei 225 large-cap index fell 2.2% and back below the 26,000 level it breached to the upside in November 2020.
The Hang Seng had an even-harder fall in Hong Kong, down 2.5%. The drop takes Hong Kong stocks to the same level seen in March 2020 during the initial selloff in response to the coronavirus pandemic.
Indian shares suffered significant losses at the open but were rallying at the time of this writing. The Sensex lurched 2.2% lower to seven-month low dating to August last year, but recovered to trade 0.8% in the red in the afternoon.
It is a scare out of Ukraine that was driving the selling in Asian markets, with news spreading of a fire breaking out at Ukraine's Zaporizhzhia nuclear power plant as Russian troops fought to take over the plant.
Early social media posts from an employee and the Ukrainian foreign minister talked up the threat to "the largest nuclear power plant in Europe." But those early notices were tempered by word from emergency services that the fire was in a training building outside the plant and was brought under control. Ukrainian authorities then said the facility was secured and "nuclear safety is now guaranteed." In real time, I'm seeing that Russian forces now control the power plant.
As in Hong Kong, mainland Chinese stocks have regressed to where they were early in the recovery from their COVID-induced nadir in March 2020. The CSI 300 index of large-cap stocks in Shanghai and Beijing was down 1.2% today, to levels last set in July 2020, when the market was on its way back up.
It is not the kind of climate the government in Beijing would like to see as it prepares to hold its annual National People's Congress. The summit is due to start Saturday, with the government due to announce a growth target for 2022.
The general consensus among the economists I follow is that the Communist Party will set a GDP target of around 5.5% or possibly 5% to 5.5%.
It may not be a target that's possible to achieve, although China inevitably hits such yardsticks through a careful massaging of the data that it releases. Some China watchers track electricity usage or the movement of people to get a better sense of how the Chinese economy is performing.
Given the headwinds blowing against China, a 5.5% target "is too high to realistically achieve," Nomura's chief China economist, Ting Lu, and his team write in a note to clients. "Beijing will likely face some major constraints to growth."
China looks set to embark on a round of measures to support the economy, meaning it is completely out of step with the general trend toward tightening with Western central banks. It may look to stimulate the property market in particular because of the decline in property values that has resulted from the government's aggressive "three red lines" policy that forces property developers to de-leveraging their books. Land sales, a key source of revenue for local and provincial governments, are floundering as a result.
The Hang Seng, closing at 21,905, is not far off its COVID-panic low of 21,139. It has surrendered all the ground it reclaimed from March 2020 to February 2021, a period during which Hong Kong stocks rallied 47.5%. A poor economy, an incredibly unpopular government and a zero-COVID stance have undermined those advances over the course of the last year.
Hong Kong has one of the world's strictest quarantines, which is causing companies to relocate executives out of the city to elsewhere in Asia. It bars non-residents from entering. And it currently has a flight ban on arriving planes from nine nations, including the United States, Canada, Australia and the United Kingdom.
Shutting the city off kept life close to normal for many months, albeit with everyone wearing masks. But the approach is not working. It can't continue unless no one travels anywhere, and it is particularly unrealistic with the highly infectious Omicron variant.
Thanks to Omicron, Hong Kong is experiencing a current explosion in COVID cases, with 56,827 positives reported on Thursday. After keeping cases to a bare minimum for many months, there has been exponential growth since late January. The cumulative case load has shot up almost 30-fold, from only 13,277 as this year began to 350,557 at last count.
The overloaded health care system and morgues can't cope with the bodies, leading the stacking of corpses in hospital storage rooms. The 198 deaths reported on Thursday took the total tally to 1,366 deaths, up from just 213 at the start of February.
Hong Kong may soon be forced to ditch its zero-COVID stance, if not on a policy level then in practice. The Hong Kong puppet government, unelected by the people and answering instead to Beijing, must stick close to the central Chinese government's stance on COVID.
But more and more residents are frustrated by being walled inside the city and by the frequent changes in government policy. Some measures seem profoundly unscientific; for example, it's currently illegal to play golf on your own or tennis at separate ends of a court, but you can cram with no restriction onto public transport. Outdoor BBQ pits are closed in the national parks, but you can take off your mask to eat in a cramped Hong Kong restaurant. The restrictions don't make sense, driven by business lobbies, not scientific advice.
Change of COVID heart
Mainland China has also been off-limits to foreigners for more than two years and China essentially has stopped issuing passports to its citizens. Walling China off and enforcing snap citywide or district-wide lockdowns has kept the official coronavirus count low.
But Beijing may be rethinking its approach. A top Chinese scientist who helped craft the country's initial response took to social media this week to suggest the world's most-populous country may move away from its zero-COVID stance "in the near future."
China's COVID strategy cannot "remain unchanged forever," Zeng Guang wrote in a post on Weibo on Monday, and "it is the long-term goal of humanity to co-exist with the virus" at tolerable death and illness rates.
Zeng is the former chief scientist at the Chinese Center for Disease Control and Prevention. He said that while China's harsh lockdown and repeated forceful intervention has prevented the widespread chaos and outbreaks seen in the West, it is now a "soft spot" that very few people in China have built up natural immunity.
China has not approved the use of any overseas vaccines inside its borders, so none of the new mRNA-based approaches have been available. Chinese-produced vaccines, made the old-fashioned way from dead or denatured virus cells, proved less effective when tested abroad. The healthcare system in China is highly advanced in the biggest cities but would struggle with widespread COVID outbreaks outside wealthy Shanghai, Beijing, Guangzhou and Shenzhen.
Zeng's comments, which haven't been censored, are highly unusual from a Chinese official, most of whom fear stepping out of the official party line. "In the near future, at the right time, the roadmap for Chinese-style coexistence with the virus should be presented," he said.
Zeng even went so far as to say that Western countries have shown "commendable courage" in trying to live with COVID. He said China should "observe and learn," although he added that there's "no need to open the country's doors at the peak of the global pandemic."
