Chinese stocks continue to melt down as spike in COVID-19 cases spurs new lockdowns and threatens global supply chain

A Wall Street trader on July 19
Richard Drew/APRichard Drew/AP
  • Chinese stocks continued their freefall on Monday after a surge in COVID-19 cases led to new lockdowns.

  • The surge in COVID-19 cases threaten the country's economy and could exacerbate supply chain constraints.

  • Shares of Alibaba extended their 3-day decline to 23% as the Chinese tech industry faces a broad regulatory crackdown.

Chinese stocks continued their decline on Monday, with the MSCI China ETF falling as much as 6% after a surge in COVID-19 cases led to lockdowns in areas including Shenzen and Shanghai.

China has led a "zero-tolerance" policy to contain the pandemic since its outbreak in 2020, but the rise of highly transmissible variants like Omicron is starting to challenge that policy.

Lockdowns in China are threatening its local economy and could exacerbate ongoing constraints in the global supply chain, as tech-hub Shenzen was targeted with lockdowns. Those lockdowns shut down factories operated by Foxconn that are used to assemble products for Apple, including the iPhone.

Shares of Alibaba fell as much as 10% on Monday and have fallen 23% in just three-days. Aside from the surge in COVID-19 cases, the broader Chinese tech industry has come under regulatory scrutiny from Beijing over the past year and a half.

Tencent fell as much as 8% on Monday after a report from The Wall Street Journal suggested the tech-giant could face a record fine for anti-money-laundering violations.

And it's not just Chinese tech stocks getting thrown out by investors. Yum China, which owns the franchise rights to KFC, Pizza Hut, and Taco Bell in China, fell 10% on Monday after it warned that the COVID-19 lockdowns have severely hurt its operating results. In the first two weeks of March, Yum China observed a 20% year-over-year slowdown in sales due to the lockdowns.

Additionally, regulatory scrutiny from the US is adding to the recent selling pressure seen in Chinese stocks. The SEC identified five Chinese stocks listed on US exchanges that could face a possible delisting unless they open their financial books to review by US auditors.

One investor who may see value in the recent destruction of Chinese stocks is Warren Buffett's right-hand man, Charlie Munger, who doubled The Daily Journal company's stake in Alibaba earlier this year.

Read the original article on Business Insider