Asian equities experienced a broad decline on Tuesday, March 15, 2022, driven by a confluence of negative factors including a sharp rise in COVID-19 infections in China, ongoing conflict in Ukraine, and anticipation of a U.S. interest rate increase. MSCI’s index of Asia-Pacific shares outside Japan dropped 1.97%, extending its monthly loss to 8.2%.
Chinese markets led the downturn, with the CSI300 index falling 1.78% to push its March decline to 11.2%. China reported 3,602 new confirmed coronavirus cases on Tuesday, a significant jump from 1,437 the previous day. The rapid spread of the Omicron variant has triggered lockdowns and travel curbs in multiple cities, raising fears of a severe economic impact.
“Right now everyone is looking at the Chinese cases and realizing that has to have an effect on production,” said Hong Hao, head of research at BOCOM International. He added that China’s first-quarter growth could be “closer to zero than 5.5%,” citing a ripple effect from the outbreak, the Ukraine situation, and the risk of U.S. sanctions on China.
Hong Kong’s Hang Seng Index dropped 4% on Tuesday, following a nearly 5% selloff the prior day. The city’s main board has now fallen 17% in March, while its tech index has plunged nearly 30% this month amid investor concerns over regulatory actions from both U.S. and Chinese authorities.
Ukraine War and U.S.-China Tensions Add Pressure
The lack of significant progress in Ukraine-Russia talks on Monday further dampened market sentiment. Growing concerns about potential new frictions between China and the United States have also weighed on investor confidence.
Washington has cautioned Beijing against providing military or financial support to Moscow following its invasion of Ukraine, as sanctions on Russian figures intensify. Global oil prices declined overnight as hopes for a resolution in talks between Russia and Ukraine eased immediate supply disruption fears. Those losses continued during the Asian session, with investor attention shifting to demand-side concerns.
U.S. crude fell 5.2% to $97.66 a barrel, while Brent crude dropped 5.16% to $101.37 per barrel. “The question we are asking is whether the markets have reached peak bearishness,” said Jack Siu, Credit Suisse’s chief investment officer for Greater China.
He noted that while there has been substantial bad news, worse could follow, and there is no clarity on resolutions from U.S. regulators regarding Chinese listed stocks.
Fed Decision Looms
Investor focus also remains on the U.S. Federal Reserve, which meets on Wednesday and is expected to raise interest rates for the first time in three years to combat rising inflation. Wall Street had a mixed session on Monday, with declining technology companies pulling most indexes lower.
The yield on the benchmark 10-year Treasury note rose to 2.1384%, while the two-year yield touched 1.865%. Gold weakened in Asia, with the spot price at $1,932.1 per ounce. Australian shares closed down 0.73%. However, stock futures for the S&P 500 rose 0.21%, and Tokyo’s Nikkei Index reversed earlier losses to edge up 0.22%.
The combination of China’s COVID surge, the Ukraine war, and the Fed’s rate decision has created a challenging environment for Asian markets. Investors are bracing for continued volatility as they assess the risks of a Chinese economic slowdown alongside the prospect of tighter U.S. monetary policy.
