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April 25, 2022

Stock markets across Europe have fallen after sharp declines in Asia on fears Covid restrictions in China could hit supply chains and the global economy.

Authorities in Beijing have implemented mass testing in one area of the city following a small outbreak of cases. But there are concerns the capital could follow Shanghai by enforcing a lockdown to contain the spread.

London's leading FTSE 100 share index tumbled, led by commodities firms such as oil producers and miners. The FTSE dropped by 2.2% and stock markets in Germany and France also fell following a decline of more than 5% on China's Shanghai Composite Index earlier. Hong Kong's Hang Seng closed 3.7% lower while Japan's Nikkei index fell by nearly 2%.

Investment Analysts Respond

"The scourge of Covid continues, with China unwavering in its zero tolerance policy," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

"As cases erupt in Beijing, there is concern that prolonged lockdowns will hit employment and lead to a sharp slowdown in growth as well as sparking fresh shipping logjams and supply chain issues."

Oil prices also fell on Monday, with Brent crude down 4.7% at $101.41 a barrel.

Beijing - which has a population of more than 21 million people - has reported a handful of new cases, but China has a strict zero-Covid policy in place. Over the weekend, some Beijing residents were told they needed to do Covid tests three times a week.

Pang Xinghuo, deputy director of the Beijing Center for Disease Prevention and Control, told that China Daily that the number of cases in Beijing is expected to increase in the following days.

The Situation in Shanghai

In Shanghai, where there was a fresh outbreak a few weeks ago, much of the city is in lockdown or facing restrictions.

The latest outbreak in Shanghai, first detected in late March, has seen more than 400,000 cases recorded so far and 138 deaths.

Some factories in Shanghai have restarted production with companies such as electric car maker Tesla reportedly requiring employees to work on a "closed-loop" system which means they eat and sleep at the plant.

"The prospect of further restrictions in China could lead to a poisonous mix of further inflationary pressure, as supply chains in the so-called 'factory of the world' get disrupted and weaker economic growth," warned Russ Mould, investment director at AJ Bell.