Almost a month after Russia’s invasion of Ukraine, turbulence in the oil market shows little sign of ending, says The Economist. The price of a barrel of Brent crude has whipsawed from a peak of $128 to a low of $98. Indeed, “the OVX index of oil market volatility has rarely been higher in the past decade than it has been this month”, reflecting the big geopolitical forces – war, inflation and Covid-19 – now buffeting the world. This week, the latter resumed centre stage on news of an unexpected eight-day lockdown in China’s financial capital, Shanghai. “There were signs of deceleration in China’s economy, particularly in the property sector” even before the latest Covid outbreak. Any sign of the slowdown becoming more broad-based “would mean more tumult for commodities”.
China’s CSI 300 Index, a benchmark of Shanghai and Shenzhen listed stocks, appeared to take the news in its stride, said Lex in the FT: it fell by less than 1%. But it had already fallen 16% this year, so “the risk of lockdowns has to some extent been priced in”. Yet the sudden restrictions threaten to have “a bigger, lasting influence”. Government officials in Shanghai denied plans to lock down the city just one day before Sunday’s announcement. “That has left investors second-guessing which companies and cities will be next in line to be affected.”
Many are taking no chances, said Pete Sweeney on Reuters Breakingviews. A study by the Institute of International Finance indicates that China has been experiencing “unprecedented” capital flight since Russia invaded Ukraine, with average daily outflows touching nearly £500m at one point. To add insult to injury, “the study found no similar outflows from other emerging markets.” Any exodus of pension funds and insurers who “buy and hold” assets for the long run in China will be painful. “Although small in absolute terms, their presence helps anchor market valuations.” Chinese bourses are already the world’s worst performing outside Russia. “If the capital flight is sustained, it could aggravate the current sell-off at a politically sensitive time”: President Xi Jinping is set to be elected to a third term later this year.