Asian shares sold off on Friday ahead of a long weekend in Australia, Hong Kong, Malaysia, New Zealand, Singapore and Sri Lanka, where exchanges will be closed on Monday for Boxing Day or a delayed Christmas holiday. While traders took their lead from Wall Street's overnight performance, Asian markets are also fretting about the spillover from the widening Covid-19 outbreak in China, which is set for a harsh winter indeed.
The heaviest selling came in export-oriented South Korea, where the Kospi finished down 1.8%, India, where the Sensex moved 1.6% lower, and Taiwan, where the Taiex closed 1.2% lower. But the losses were generally quite restrained. In Tokyo, the Topix ended 0.5% down, while some Southeast Asian markets such as Malaysia and Thailand witnessed slim gains.
Chinese stocks have held up surprisingly well. The CSI 300 of the largest listings in Shanghai and Shenzhen inched 0.2% lower on Friday, leaving them 3.2% lower for the week. In Hong Kong, offshore Chinese listings led to a 0.4% decline today, although Hong Kong stocks are up 0.6% in the last week thanks to a 2.7% jump on Thursday generated by beleaguered Chinese property developers.
The China Securities Regulatory Commission announced it will allow developers to conduct backdoor listings, the latest in a string of measures easing access to the capital markets. China's real estate market entered a tailspin after the Beijing administration forced deleveraging on the sector, leaving it desperately starved of cash.
The CSRC, China's equivalent of the U.S. Securities and Exchange Commission, also said this week that it will accelerate the ability of Chinese Internet platform companies to list abroad. The Chinese stock watchdog also pledged to continue supporting its cooperation with the SEC's accounting wing, the Public Company Accounting Oversight Board (PCAOB) to allow for inspection of the audit papers of U.S.-listed Chinese companies.
I wrote last Friday about an extremely enthusiastic verdict delivered by the PCAOB on its first efforts to inspect the books of Chinese companies. That indicates companies such as Alibaba Group Holding ( (BABA) and HK:9988), JD.com ( (JD) and HK:9618) and Pinduoduo (PDD) will be able to sustain their Wall Street listings.
But this winter will be a long, hard slog for the Chinese economy. Although it's a long-term positive that China has abandoned its strict zero-Covid policy, which was proving impossible to enforce in the face of the highly infectious Omicron strain, the low levels of natural immunity after three years of seeking to stamp out every outbreak of the disease mean there's now a massive outbreak spreading nationwide.
The official Chinese infection statistics are total nonsense, as I discussed on Monday. Much of the daily testing that was occurring has now stopped. And there's a high hurdle for a death to be considered "Covid," with the case requiring a positive test (which is not being conducted) and a specific cause of death from pneumonia or respiratory failure while showing no other obvious underlying cause of death. As a result, there have been "zero" Covid deaths all throughout China since five people died of the disease on Monday, according to the official statistics, despite reporters discovering that Beijing crematorium driveways are full of dozens of hearses being met by staff in hazmat suits.
Hunkering down for a Covid battle
A Shanghai hospital has warned staff to prepare for a "tragic battle" with Covid-19, Reuters reports, because it expects half the population of China's biggest city to catch Covid before the end of the year. The Shanghai Deji Hospital posted on its WeChat social media account that there are already a likely 5.43 million positive Covid cases in Shanghai, which has a total population of 25 million. The private hospital subsequently deleted a post that 12.5 million Shanghai residents would contract Covid by the New Year.
Western democracy and freedom of speech may often seem chaotic, but the current conditions in China lay bare the problem of a dictatorship with a doctored, state-owned propaganda press. The Global Times state newspaper leads today with no fewer than six stories criticizing the United States and one covering the meeting this week of trade representatives from Australia and China. Only "under the fold" in lesser news does the Global Times mention Covid in China.
Even then, the mention is within an article about how the number of fever patients in Beijing is declining -- authorities said late last night that it fell 11% on Wednesday "from its peak in recent days," which looks like cherry-picked data -- while another story says people in several cities including Hangzhou are begging to be put in centralized government quarantine because they don't want to infect their family members. A third story outlines how the State Council in Beijing is coordinating collaboration between hospitals and health clinics. Subtext: The government is still doing great work, don't fret about the disease.
There's also a video story from former editor-in-chief Hu Xijin providing the latest government spin that "People's fear toward Omicron eases quickly." Propaganda officials in China are attempting to explain the sudden about-turn from zero-Covid to zero controls as justified because Omicron is not nearly so deadly as earlier Covid strains. "The risk of death is negligible," Hu tells us in English.
Without much in the way of reliable official data on the extent of the outbreak, economists and analysts will need to look to privately generated numbers, anecdotal evidence and even social media feeds to get a picture of the situation on the ground. With the Lunar New Year coming early on Jan. 22 and the population free to move around for the first time in three years, the first quarter "will be critical," Standard & Poor's tells us in a new report. "China faces a bleak mid-winter," S&P Global Ratings credit analyst Eunice Tan writes.
Traffic congestion across 15 major cities is down 56% from the level in January 2021, according to data generated by Baidu (BIDU and HK:9888). Air traffic on Thursday fell to 42% of pre-Covid levels, data from VariFlight show. Residents report many Chinese cities look like ghost towns under lockdown because scared citizens are staying home.
Improved mobility and business activity as a result of the scrapping of zero-Covid in the long term will be balanced against the immediate impact of the disease. China watchers expect the economy to recover later in the year and ultimately benefit from the removal of restrictions, with S&P forecasting economic growth of around 5% next year, which would be up from around 3% in 2022. However, the question will remain, at what human cost?
We haven't heard from President Xi Jinping as to why China is now abandoning a "dynamic zero-Covid" policy that he pushed and pushed. But he originally did tell the state news agency Xinhua that "Our country has a large population, such strategies as 'herd immunity' and 'lying flat' would lead to consequences that are unimaginable."