Asian markets flash red again, miners slump and Ocado wins another technology deal

“Asian markets were troubled for the second day in a row as investors weighed up the potential hit to corporate earnings and economic growth from new Covid lockdowns in China, particularly in the electronics manufacturing sector where disruption to production could lead to another supply chain crisis,” says Russ Mould, Investment Director at AJ Bell.

“Ongoing uncertainty over whether China will provide military assistance to Russia also weighed on sentiment, with the Shanghai SE index down nearly 5% and the Hang Seng falling nearly 6%.

“Real estate was among the worst performer sectors on the SSE amid concerns about the fragility of the Chinese property market.

“Chinese equities were out of favour last year due to regulatory pressures on a multitude of sectors. In early 2022 investors started to fish for bargains in the region despite plenty of signs that economic growth was slowing.

“A hard-line approach to Covid is not new for the country, but the resurgence in cases has provided a stark reminder that the pandemic is still lingering. Investors might have become too complacent over the risks of lockdowns returning once again.

“Disruption to the Chinese economy is not good news for commodity producers which have relied on the region to buy their metals and minerals for the past few decades. Heightened concerns explain why miners had a bad day on the market – and if they’re falling, you can be almost certain that the resources-heavy FTSE 100 will be dragged down. And that’s exactly what we saw on Tuesday with the FTSE 100 dropping 1.4%.

“Prudential’s sharpened focused on Asia saw its shares succumb to heavy selling as its growth plans are all about selling financial services to the wealthy. Any concerns about reduced economic prosperity in China act as a dark cloud for its share price.

“In the West, companies continue to quantify the potential impact on earnings from having operations in Russia or Ukraine, and whether they are pulling out or not. Imperial Brands is the latest to clarify its strategy and in its case the impact on profits looks marginal.

“Amid the doom and gloom, Ocado strengthened its partnership with Auchan with a new contract win in Poland, but the market wasn’t paying any attention or simply didn’t care. The two companies are already working together on a project in Spain, so the Poland win is a vote of confidence in Ocado’s capabilities. Once it gets a foot in the door with a retailer, there are plenty of opportunities to win more work, and this applies to quite a few of its clients.

“Ocado’s problem is that the more projects it wins, the more money it must invest to get its technology up and running for each client. The market is very short-sighted and is focused on the outgoings rather than Ocado effectively spending money now to make a lot more money in the future.”

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