Covid spectre back haunting China

Don’t let anyone tell you that Covid is not a major influence on investor confidence and sharemarket activity – it is and right now it’s returning to once again worry investors across the globe.

The sharp fall in one share price on Wall Street on Monday confirmed that — shares in Tesla, Elon Musk’s electric vehicle giant — the one stock most exposed by a sudden decision in China to impose another round of testing across parts of Shanghai.

Shanghai is where Tesla has a huge plant, one of four around the world and the one which was shut off and on for more than six weeks in April and May by the first sweep this year of Covid across China’s biggest city.

While Hong Kong and Chinese markets sold off on Monday on news that Macau had shut all its 30-odd casinos for a week and told residents to stay at home for the same period – except for emergency services and food outlets – it was Tesla’s 6.5% on Wall Street that stood out for not being directly linked to gambling stocks which fell as well.

Some analysts claimed the fall was due to the move by Musk to call off his $US44 billion bid for Twitter, but if that was the case then Tesla shares should have risen on Monday in relief that Musk will not be forced to put more financial pressure on himself to do this overpriced deal.

Investors now know that Tesla is exposed to the vagaries of Chinese health and demand like few other US companies.

The lockdowns in April and May confirmed that as they cost Musk’s company thousands of vehicles – some estimates claim the company missed around 15,000 based on the return to normal operations in June when more than 78,000 vehicles were sold. Some analysts reckon the value of that lost production was more than $US1.5 billion.

Last weekend saw news of new Covid variant reported in Shanghai and at least three other cities while the central Chinese city of X’ian was in the middle of a series of ‘circuit breaker” measures aimed at trying to control Covid over a week.

As well the government ordered compulsory testing of the more than six million residents in the southern Chinese city of Guangzhou separate orders were issued for further compulsory testing by authorities in Shanghai.

China ordered mass three-day PCR testing in Shanghai for Covid-19’s omicron variant in nine of the city’s 16 districts, according to state media reports.

From today (Tuesday) to Thursday, nine districts and other areas of Shanghai with a record of positive cases will undergo mass nucleic acid testing. During the testing people can move freely with a negative certificate from within 48 hours.

That is an attempt to avoid the mass lockdowns and other restrictions earlier this year which generated an upsurge of protest in the city.

China’s largest city and financial capital is just recovering from a two-month lockdown in April and May that reduced oil demand for the country by more than one-million barrels a day.

All this ahead of the important June trade figures tomorrow and then Friday’s June quarter economic growth report, along with data in investment, retail sales, employment and industrial production.

The closure of Macau’s casinos generated had the most immediate impact on Hong Kong shares Monday.

So it was no wonder the Hong Kong market lost 2.7% on Monday and Shanghai’s market shed 1.28% by the close as casino and other Chinese linked stocks fell.

Chinese tech stocks listed in Hong Kong were also hit as the mainland government continued its attacks on major companies like Tencent and Alibaba which were both fined for claimed breaches of anti-monopoly laws.

Property stocks also fell after a medium-sized property company missed debt repayments as well.

Hong Kong-listed shares in Wynn Macau lost around 8%, with Sands China tumbling almost 9% and MGM China Holdings sliding 7%.

Those losses spread to Wall Street with Wynn Resorts and Las Vegas Sands (parents of the two Hong Kong-listed stocks) falling more than 6% each on the back of the worsening Covid outlook in China.

“COVID headwinds aren’t just a Chinese phenomenon – cases are climbing globally, although the risk of lockdowns in the US and EU remains extremely low,” wrote Adam Crisafulli of Vital Knowledge in a note quoted by Reuters.