Chinese stocks hit four-week low as Covid cases spread and factory output declines

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By Laura He, CNN Business

Chinese markets fell on Wednesday as global investors continue to grapple with the aftermath of Federal Reserve Chairman Jerome Powell’s hawkish speech in Jackson Hole last week, and the alarming spread of Covid in China.

Investor sentiment was also hurt by new official data out of China which showed factory activity continued to contract in the world’s second-largest economy after strict Covid lockdowns and a record heatwave.

The benchmark Shanghai Composite Index in mainland China fell 0.8% to close at its lowest level in four weeks. So far this year, the index has fallen almost 12%.

The tech-heavy Shenzhen Component Index also fell 1.3% to its worst level in more than two months.

Japan’s Nikkei 225 lost 0.4%. Hong Kong’s Hang Seng benchmark remained stable. But Korea’s Kospi reversed earlier losses and closed 0.9% higher.

Chinese electric car and battery maker BYD plunged 8% in Hong Kong, after Warren Buffett’s Berkshire Hathaway said in a filing that it sold about 1.33 million shares of Hong Kong-listed BYD shares for 370 million Hong Kong dollars ($47 million).

After the sale, Berkshire’s stake in BYD plummeted to 19.92% from 20.04%. The news follows weeks of speculation that Buffett could quit China’s biggest electric vehicle maker, which is nipping at Tesla’s heels.

The losses in Chinese stocks came as the country battled an intensive wave of Covid outbreaks. All provinces in mainland China have identified locally transmitted Covid-19 cases in the past 10 days, according to CNN calculations based on data from the National Health Commission.

The rapid spread of cases has raised concerns about more lockdowns. Earlier this year, China placed Shanghai and other key cities under strict lockdown measures for months, hammering consumer activity and disrupting global supply chains.

Earlier this week, authorities in Shenzhen, the country’s tech hub, closed the world’s biggest electronics market in Huaqiangbei and suspended nearby public transport in response to a small number of Covid cases.

“The implementation of virus restrictions in several parts of [China’s] biggest cities continue to highlight its struggle to contain the gaps,” said Yeap Jun Rong, market strategist at IG Group, adding that Beijing’s strong stance on zero-Covid means the country’s growth prospects could remain moderate.

Investors are also upset by news that China’s huge manufacturing industry continued to contract in August amid the country’s worst heat wave in six decades.

A government survey released on Monday showed the manufacturing purchasing managers’ index rose to 49.4 in August from 49 in July, but remained in contraction territory. The 50 point mark separates contraction from growth.

“Economic activities remained weak in August, partly due to power shortages caused by heatwaves,” Zhiwei Zhang, chairman and chief economist of Pinpoint Asset Management, said in a note on Wednesday.

A record heat wave and drought have swept through southern China over the past month, causing power outages in industrial heartlands and disrupting factory operations for several international companies, such as Tesla and Toyota.

The power crisis eased this week as power supplies to industrial users were restored in Sichuan and Chongqing. But the main constraint on the economy – the zero Covid policy – has not been lifted, analysts have warned.

“The disruption from power shortages is fading now,” but the Covid situation is “worsening again,” Julian Evans-Pritchard, senior China economist at Capital Economics, wrote in a report on Wednesday.

“For now, the resulting disruptions appear modest, but the threat of damaging blockages is growing,” he said.

– CNN’s Beijing bureau and Simone McCarthy contributed to this report.

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