By Geoffrey Smith
Investing.com -- Chinese ADRs in New York slumped at the opening as the spread of COVID-19 to the Chinese capital of Beijing intensified fears of a broad economic slowdown in the world's second-largest economy.
By 10:20 AM ET (1420 GMT), the NASDAQ Golden Dragon index was down 3.0% at its lowest in seven weeks, a day after authorities ordered a week of mass testing in the Chinese capital's largest residential district, Chaoyang. Reuters and the Associated Press reported scenes of panic buying of essentials by consumers as they braced for an indefinite confinement at home.
Beijing has started to implement mass testing and quarantining measures as Shanghai prepares to start its fourth week of near-complete lockdown, during which time the country's most important port and one of its most important industrial hubs has been severely disrupted.
The measures haven't succeeded in bringing the outbreak under control, with Shanghai reporting more than 19,000 new cases and 51 deaths on Sunday, according to official figures released on Monday.
While only 19 cases of COVID-19 were confirmed in Beijing on Sunday, officials warned that the disease may have been circulating undetected for a week or more, raising the risk of extensive community spread.
The Golden Dragon Index includes some of the most popular Chinese ADRs, almost all of which suffered substantial losses at the opening. Alibaba (NYSE:BABA) ADRs fell 2.5% while Bilibili (NASDAQ:BILI) fell 2.3%. Electric vehicle maker Xpeng (NYSE:XPEV) fell a more modest 0.7% while search giant Baidu (NASDAQ:BIDU) outperformed with a drop of only 0.2%.
The scale of the outbreaks across the country - and the impact of the quarantining measures meant to contain them - has had an increasing impact on the Chinese economy. Monthly purchasing manager surveys for services and manufacturing showed both sectors in contraction in April. The authorities have responded by allowing the currency to depreciate the most in six years. The offshore Chinese yuan fell 1% against the dollar on Monday to 6.5860, its highest since November 2020. Yuan depreciation typically reduces the dollar value of companies who earn their revenues in China.
The COVID wave is threatening to aggravate an already difficult situation in China's housing market, where a number of big property developers are struggling with mountains of debt and no real way of monetizing the apartments they have built until life returns to normal.
Earlier Monday, the People's Bank of China reportedly agreed to let banks loosen the financial conditions attached to their loans to a raft of struggling developers including China Evergrande (OTC:EGRNY) and Shimao Property Holdings (OTC:SHMAY).