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Coronavirus Hong Kong
OpinionComment
Richard Harris
Richard Harris

The View | Why inflation and slow growth, not the Ukraine war, will drive markets

  • Even as the Covid-19 pandemic and the war in Ukraine continue, expect the global transition to high inflation and rising interest rates to shape the market narrative
  • The threat of stagflation and recession loom on the horizon, but there is still time to fix things

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A man walks with his dog near a block of flats damaged by shelling from fighting on the outskirts of Mariupol, Ukraine, on March 29. Russia’s invasion of Ukraine has pushed Covid-19 out of the spotlight in many parts of the world, but the pandemic and government responses to it still have a large role to play in the global economy. Photo: AP
Richard Harris
If anyone had predicted what would happen in the first quarter of 2022, you would have been forgiven for thinking it was an April Fool’s Day joke. It is as if the Four Horsemen of the Apocalypse had finally arrived. They brought pestilence via Covid-19, famine through soaring food prices, a declaration of war, and death – but enough about Hong Kong.
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The pandemic was reduced to a sideshow in many parts of the world following Russia’s invasion of Ukraine, but it still has a sting. Mainland China and Hong Kong’s pursuit of severe “zero-Covid” policies – including, almost unbelievably, a lockdown of Shanghai – are reflected in the struggles of the stock indices in Shanghai and Shenzhen.

By contrast, the S&P 500 is only down slightly and up more than 60 per cent in the past three years. The performance of the Hang Seng Index has been respectable, down only around 5 per cent.

We can’t celebrate too fast, though, as the Hong Kong market has fallen by nearly a quarter in the past three years. That is second only to Russia among the recognised markets, which was down almost 40 per cent in the first quarter of 2022.

Famine has been real in Ukraine, where food and water have been cut off in some cities, recalling a tactic used in medieval times. We saw grocery shelves in Hong Kong cleared by panic buying, revealing the fragility of supply chains and poor messaging.

04:22

‘Large-scale lockdown’ expected when Hong Kong launches universal Covid-19 testing, source says

‘Large-scale lockdown’ expected when Hong Kong launches universal Covid-19 testing, source says
Commodities prices have leapt this quarter, with natural gas, oil and wheat all rising sharply. Commodity prices were rising anyway, but a full-on war shocked the markets.
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