Chinese stocks and funds focused on the region fell on Monday as investors recoiled in response to a jump in China’s inflation data and a deteriorating Covid-19 outbreak around Shanghai.
Released overnight, both consumer and producer price inflation were higher than expected at 1.5% and 8.3% respectively, with food prices lifting the former.
The inflation numbers come amid continued Covid outbreaks in China and the government sticking to its "dynamic zero” COVID policy.
As well as Shanghai, which has been in lockdown 28 March, the southern city of Guangzhou has today suspended in-person classes for schools due to the virus, according to reports from local media CCTV.
And despite being on lockdown, Shanghai has reported a new record of more than 26,000 Covid cases in 24 hours.
But the regional government announced plans for an exit from the current measures, with certain districts to be given more freedom.
The automobile industry has been affected, with production and sales being hit according to the latest data on Monday.
Financial markets reacted with concern: the Shanghai Composite index fell 2.6% and the Hang Seng more than 3%, Brent Crude Oil (LSE:BRENT) fell over 2% to just over $100 a barrel.
In London, country-specific investment trusts were knocked lower, with Fidelity China Special Situations PLC (LSE:FCSS) down 3.9%, JPMorgan China Growth & Income PLC down 1.7%, Baillie Gifford China Growth Trust PLC (LSE:BGCG) down 2.7%.
Scottish Mortgage Investment Trust PLC (LSE:SMT), which has many Chinese companies in its portfolio, was down 2.7% and the biggest faller on the FTSE 100.
“There are fears that lockdowns and economic restrictions could deepen if cases spread to other cities,” said Victoria Scholar, head of investment at Interactive Investor.
Analysts at Rabobank noted that while the Covid restrictions are disinflationary in terms of their impact on oil, “they are inflationary in terms of disruption as regards production and transportation and also food prices given labour and input shortages plaguing Chinese farmers is raising the prospect of higher Chinese import demand”.