'Poisonous mix' UK stock market tumbles as Beijing edges closer to lockdown
THE FTSE has fallen over two percent on the start of this week's trading as fears grow over a new lockdown in Beijing.
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The Chinese capital has begun mass testing following a recent Covid spike with mounting concern it could follow Shanghai in entering lockdown. Residents have already begun panic buying following scenes of food shortages in Shanghai with wider fears China's zero Covid stance will derail global supply chains and growth. AJ Bell investment director Russ Mould noted: "The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called ‘factory of the world’ get disrupted, and weaker economic growth. The result could be stagflation – a slowing economy accompanied by surging prices – a brew few investors would be able to stomach."
After Asian markets slumped overnight the FTSE continued loses in the UK on Monday morning.
Firms exposed to Chinese commodity demand have particularly suffered with miners Anglo American and Glencore both falling over six percent.
Beyond London's markets European markets have been equally dented.
Despite some relief from the victory of President Macron in France, the Stoxx 600 index of major European firms fell over two percent.
Markets have also become concerned by developments in the US where central bank the Federal Reserve has signalled steep interest rate hikes to come in a bid to tame soaring inflation.
Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, explained: "Super-hot inflation is settling like an ominous heat cloud over the world’s largest economy, and although a succession of steeper interest rate hikes might blast cold air onto demand, the worry is that the policy could blow up into a recession, which would have knock on effects around the world."
With demand already falling in China, oil prices have tumbled with Brent Crude inching closer to $100 (£78.66) a barrel at $101.92 (£80.17).
Oil firms have also been among the FTSE's biggest fallers today with BP down 4.3 percent and Shell falling 3.35 percent.
While falling oil prices may seem good news for inflation, increased trade disruption and supply chain bottlenecks could end up doing more to add to price rises, particularly if more large Chinese cities fall under lockdowns.
A taste of the impact of China's zero Covid stance has already been given in Shanghai which which has seen massive port back-ups and ships diverted to other ports due to a shortage of truckers.
Hong Kong's Hang Seng index, which saw a dip of nearly four percent on Monday, has been continuing to record loses in recent weeks, down over eight percent over the past month.
George Lagarias, Chief Economist at Mazars, warned: "The global economic repercussions from China’s new lockdowns will be formidable.
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"But they will pass.
"The images of repression, however, will scar China as an investment destination for years to come.
"China might still achieve its growth targets. But it will, probably, increasingly have to do it without western Foreign Direct Investments."