Moneycontrol Pro​ Panorama | Chinese lockdowns bite hard, send out global shockwaves

(Image: AP)

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

China’s economy is taking a harder than expected hit from the COVID-19 lockdowns even as its government remains firm on its zero-COVID strategy. Retail sales fell by 11.1 percent in April over a year ago while industrial output fell by 2.9 percent, both faring much worse than estimates, according to this FT report​ (free to read for Pro subscribers). The decline in retail sales was nearly double of what economists were expecting, underscoring the difficulty of predicting the impact of lockdowns.

The damage is not to China’s economy alone. In this week’s Eastern Window, we write about how the global supply chain has been jolted by the lockdowns. “The impact has been felt across several countries and industries. Automobile makers, including Tesla and Toyota, were hit by “high input costs” while Sony could not produce as many PlayStations as it did earlier. Hospitals and construction companies in the US and Australia found it difficult to obtain sufficient supplies of chemicals sourced from China. Even manufacturers of bathroom accessories in the US complained they could not produce several goods because the Chinese supply of essential parts had stopped coming.”

Once COVID-19 cases taper to acceptable levels to the government, lockdowns will ease and the FT report mentions that authorities aim to “broadly open” Shanghai from June 1. Till then, its impact on the economy could be telling and it’s not surprising that some monetary stimulus measures have already been announced to support the real estate sector.

But the central bank’s monetary easing can cause problems for the Indian rupee. In ‘Rupee to remain under pressure as it catches up with other Asian majors’, Gaurav Kapur says that pressure on the Chinese Yuan due to the PBOC’s easy monetary policy could weigh on Asian currencies, saying “In fact, a sharp depreciation in the Yuan remains a key downside risk to the Rupee’s exchange rate”.

Done deal

This was one M&A transaction where the only piece missing was who the buyer was. The Adani group emerged as a successful bidder for Holcim’s stakes in Ambuja Cements and ACC, giving it two prized cement assets in India. Although the open offer prices were not too far off the current prices, shares of both companies rose, an indication that investors are anticipating Adani’s entry to be positive for these companies. Holcim has exited at a good valuation and is likely to invest further behind its strategy to go green.

My colleague R. Sree Ram had written in Panorama on May 10, “Ambuja Cements has grown well and created immense shareholder wealth under the original founders. But the company did not maintain its expansion momentum under Holcim. Hopefully, a new promoter will bring more growth focus into Ambuja Cements and ACC. This will be important for minority shareholders returns.” The Adani group has investments in energy, mining and logistics and investors will want to see if the coming together of these strengths can lead to a better future for the two cement companies and their valuations, in terms of growth and profitability.

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Technical Picks: Ujjivan Financial, Crude oil, USD-INR, DLF, Hindustan Unilever and Tata Chemicals (These are published every trading day before markets open and can be read on the app)

Ravi Ananthanarayanan Moneycontrol Pro​