By Jack Denton
The worsening Covid-19 situation in China is weighing on the country's stock market, with companies including Alibaba, JD.com, and NIO notching stark declines on Monday amid fears that lockdowns could spread to Beijing.
Shares in Alibaba (ticker: BABA) fell 4% in U.S. premarket trading, with JD.com $(JD)$ stock 3% lower and NIO $(NIO)$ retreating 4.5%.
Futures tracking the S&P 500 index were 0.9% into the red, by comparison, with the tech-focused Nasdaq Composite poised to drop 0.8%. In Asian trading, the Shanghai Composite plunged 5.1% and Hong Kong's Hang Seng Index ended 3.7% lower.
A wave of Covid-19 infections has led to strict and extensive lockdowns in Shanghai, China's financial center, since March, with a resurgence in coronavirus across the country also limiting some industrial production. The highly contagious Omicron variant continues to spread, and fears are rising that the Chinese capital, Beijing, could be next to lock down.
"China continued to double down on its zero-tolerance Covid-19 policy, with authorities in Shanghai saying that stringent mobility restrictions would be extended," said Mark Haefele, the chief investment officer at UBS Global Wealth Management. "Beijing has ordered mass testing of residents in its largest district later this week, leading many to stockpile food as a precautionary measure."
"China's response to Omicron presents headwinds to growth," Haefele added. "We now expect China's GDP growth to be 4.2% this year."
The situation is likely to pressure a diverse array of Chinese companies, from e-commerce players like Alibaba and JD.com to automakers such as NIO and XPeng $(XPEV)$.
For Alibaba, the recent selloff -- the company's U.S.-listed stock is down almost 25% in the past month -- only compounds shareholders' woes.
Set to open below $83 a share on Monday, Alibaba stock hasn't been this low since 2016. The company lost almost half of its market value in 2021 amid severe regulatory scrutiny in both China in the U.S., with a decline in the stock price exacerbated in 2022 amid macroeconomic pressures from high inflation and rising interest rates.
An accelerated economic slowdown in China from more Covid-19 lockdowns would pinch Alibaba stock because the e-commerce group is highly dependent on consumer spending as well as discretionary spending from businesses on online advertising.
"Although some parts of China have been under restrictions longer than Shanghai, Omicron's arrival in Beijing would be an ominous development," said Jeffrey Halley, an analyst at broker Oanda.
Write to Jack Denton at jack.denton@dowjones.com
$(END)$ Dow Jones Newswires
April 25, 2022 07:29 ET (11:29 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.