HONG KONG, (AFP) – After the COVID-19 shut down of Shenzhen’s innovation cluster and concerns about Russia’s military outreach to China, Hong Kong tech companies led another rapid equity selloff in the city.
Further selling pressure due to concerns about China’s economic outlook further dropped WTI back below $100 a week after hitting a 14-year high on the heels of Vladimir Putin’s invasion of Ukraine.
Another factor putting pressure on the black gold was the prospect of peace negotiations in Eastern Europe.
Since Russian forces invaded the neighbouring country, foreign powers have imposed devastating sanctions on Russia, and many corporations have withdrawn from the market.
Commodities from the area, especially oil, have risen in price as a result of the measures. This has led to fears that already high inflation could spiral out of control and cause a lot of damage to the economy.
When China started to crack down on technology businesses, Hong Kong was one of the most affected markets. This was part of the government’s plan to tighten its control over the economy.
Last week, news broke that US officials were also attempting to tighten down on Chinese companies listed in New York. The selling accelerated on Monday after hearing about the shutdown in Shenzhen.
In response to China’s announcement that Shenzhen will be shut down in an effort to limit the COVID-19 epidemic, the Hang Seng Index fell 5%, while the Hang Seng Tech Index fell 11%.
In New York later in the day, the news that Vladimir Putin had asked China for military aid in Ukraine made the situation even tense.
Traders fear that Chinese businesses might face penalties or delisting if Beijing responds favourably to Russia’s call for cooperation.
Marvin Chen, a strategist at Bloomberg Intelligence, said a “substantial rating for China tech may require a change in regulatory tone,” adding that interaction between Moscow and Beijing will be keenly observed.
As a result of delisting worries and increasing COVID pressures, few bulls remained. Even if you’re an optimist, you’re seeing a lot of wholesale liquidation in the market right now. “
“The difficulty right now is the absence of a good catalyst in China, with regulatory noise continuing to create an overhang,” said Sharif Farha of Safehouse Capital on the current situation for US-listed Chinese companies.
“Chinese stocks are expected to continue to endure selling pressure in the immediate term. In the long run, the strongest will undoubtedly develop stronger and larger. “
In the early hours of Tuesday morning, the Hang Seng Index fell more than 4% before rebounding a little on bargain-hunting and good news from China.
There was a significant drop in all of the major cities except for Tokyo, with the exception of Seoul and Seoul’s neighbouring cities of Taipei and Bangkok, which gained ground.
The numbers coming out of China met expectations, but the rise in unemployment and an increase in COVID-19 cases throughout the nation, as well as the closure of Shenzhen, have raised worries that the massive economy could experience another recession.
Additionally, supply chain snarls might increase inflation.
For this reason, the price of WTI has fallen to $96.70, a far cry from the $130.50 high it hit only last Monday, which was its highest level in 14 years.
This past week, Brent fell to $100.05 from its previous high of $139.13.
The fall in oil prices was made worse by signs that the Ukraine conflict was coming to an end.
Talks between the United States and China are also thought to be going well, according to reports from Moscow.
The discussions between Russia and Ukraine are seen as a move in the right direction and there is optimism that a settlement will be reached, according to Matthew Simpson of StoneX Financial, even if they have yet to deliver any substantial results.
There is no longer a strong foundation for commodity prices since these expectations have been dashed.
He called the notions of $200 a barrel and $50 a barrel this week “far-fetched,” but he predicted that crude oil will remain in the $90-$110 range for the rest of the year.
Trader expectations for the Federal Reserve’s policy meeting are similarly high as authorities strive to reign in prices while still keeping an eye on the wobbly economic recovery, which is why most expect a quarter-point increase in interest rates.
