Hong Kong’s Hang Seng Index has now lost roughly a fifth of its value in March alone. Tuesday’s 4% drop followed a nearly 5% rout the day before. The city’s main board is down 17% for the month.
Its tech index has been hammered even harder — down nearly 30% in March, as investors fret over regulatory crackdowns from both U.S. and Chinese authorities. That is the stark math behind Asia’s stock rout on Tuesday, March 15, 2022.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.97%. It is down 8.2% so far this month. Chinese markets led the declines.
The CSI300 index fell 1.78%, pushing its monthly losses to 11.2%. What is driving this?
Three forces, all hitting at once. First, China’s COVID-19 surge. The country reported 3,602 new confirmed coronavirus cases on Tuesday — up from 1,437 on Monday.
The Omicron variant is driving the rapid increase. Lockdowns and travel restrictions have been imposed in several cities. Investors now fear the outbreak will severely damage the world’s second-largest economy in the first quarter.
“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. “China’s growth in the first quarter could be closer to zero than 5.5%.
There’s a ripple effect. There’s Ukraine, the risk of U.S. sanctions on China and rising Chinese domestic COVID cases — it does not look good.” Second, the Ukraine war. Russia’s invasion grinds on.
Ukraine-Russia talks on Monday showed no major progress. That added to the nervousness already gripping equity markets.
No end in sight, no diplomatic breakthrough visible. Third, the United States is set to raise interest rates for the first time in three years. That expected hike compounds the anxiety.
Investors are recalibrating everything. And then there is the geopolitical layer. Washington has warned Beijing against providing military or financial help to Moscow after its invasion.
That warning hangs in the air. The risk of U.S. sanctions on China is now a live concern for investors.
It is another weight on sentiment. Hong Hao summed it up bluntly: “It does not look good.” How did we get here? The war in Ukraine began in late February.
China’s COVID zero policy, which had kept cases low for months, is now being tested by Omicron’s ferocious transmissibility. The lockdowns are disrupting supply chains and factory output.
The U.S. Federal Reserve, after years of near-zero rates, is pivoting to combat inflation. All three developments converged in the same week. That is why the selloff is so broad.
It is not one bad headline. It is a pile-up. Chinese tech stocks are caught between domestic regulatory pressure and the threat of U.S. delistings.
Hong Kong’s market, already battered by political uncertainty, is now absorbing all of this at once. March is shaping up to be a brutal month for Asian equities.
The numbers do not lie. The Hang Seng is down 17% in March. The CSI300 is down 11.2%.
The broader Asia-Pacific index is down 8.2%. Those are not corrections.
Those are routs. There is no single cause. There is no easy fix.
The war continues. The virus spreads. The rate hike comes.
Investors are selling first and asking questions later.
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