China's growth could fall to near zero instead of 5.5%
On a Tuesday morning in March 2022, Asian markets absorbed the weight of three converging crises at once — a war in Europe refusing to yield to diplomacy, a COVID resurgence threatening China's economic engine, and the imminent arrival of the first U.S. interest rate hike in four years. The MSCI Asia-Pacific index fell nearly 2%, with Chinese equities leading the retreat, as investors confronted the rare and unsettling condition of having no safe harbor: oil fell, gold weakened, and equities bled across the region. It was a moment that reminded markets — and the people behind them — that the world's risks do not wait their turn.
- Three simultaneous shocks — war, pandemic, and monetary tightening — converged on Asian markets Tuesday, stripping investors of any single narrative to lean on.
- China's daily COVID cases more than doubled overnight to 3,602, raising the specter of near-zero first-quarter growth in the world's second-largest economy and fresh supply chain disruptions.
- Peace talks between Russia and Ukraine resumed with hope but delivered nothing, sending oil prices on a volatile round trip that ended with U.S. crude still above $100 a barrel.
- Hong Kong's Hang Seng fell 3.8% in early trading — down 17% for the month — while China's CSI300 dropped 2.3%, with losses spreading unevenly but persistently across the region.
- All eyes turned to the Federal Reserve's Wednesday decision, with Treasury yields rising and gold weakening, leaving markets with no traditional refuge as the rate hike approached.
Asian markets opened Tuesday already braced for turbulence, and the session delivered on every front. Investors were managing three distinct anxieties simultaneously: an unresolved war in Eastern Europe, a sudden doubling of COVID cases across China's major cities, and the near-certain arrival of the Federal Reserve's first interest rate hike since 2018. The pressure proved too much to absorb. MSCI's broadest Asia-Pacific measure fell 1.91%, with Chinese stocks bearing the heaviest losses — the index had already shed 8.2% since the month began.
The day had opened with a faint hope. Russia-Ukraine negotiations were resuming, and oil prices tumbled overnight on the possibility of a diplomatic breakthrough. But when the fourth round of talks actually convened, there was nothing to show for it — no progress, no signal of movement. U.S. crude slid a further 2.54% to $100.44 a barrel, and Brent fell to $104.42, reflecting a market that had briefly believed and then stopped believing.
China's COVID surge added a separate layer of dread. The 3,602 new cases reported Tuesday — more than double the prior day's count — were modest by pandemic-era standards, but they landed in a market already primed for fear. Analysts warned that China's first-quarter growth could collapse toward zero rather than the expected 5.5%, with production slowdowns and supply chain tightening rippling outward. Hong Kong's Hang Seng dropped 3.8% in early trading, extending a month-long decline of 17%. China's CSI300 fell 2.3%. Australia slipped 0.5%. Tokyo's Nikkei eked out a rare 0.17% gain.
Beneath all of it ran the quiet dread of the Fed's impending move. Treasury yields climbed, gold weakened, and the usual refuges offered no shelter. Markets were left with a single unresolved question: whether the coming rate decision would steady the ground beneath them — or confirm that there was none left to stand on.
The markets opened Tuesday morning in Asia already braced for bad news, and the day delivered. Investors were juggling three separate anxieties at once: a war in Eastern Europe that wouldn't stay contained, a sudden spike in COVID cases spreading through China's major cities, and the looming certainty that the Federal Reserve would raise interest rates for the first time in three years—possibly as soon as Wednesday. The combination proved too much. MSCI's broadest measure of Asia-Pacific stocks outside Japan fell 1.91%, with Chinese equities bearing the worst of the selling. The index had already lost 8.2% since the start of the month.
The day began with a glimmer of hope. Negotiators from Russia and Ukraine were scheduled to resume talks, and markets briefly imagined a resolution that might ease the pressure on global oil supplies. Oil prices tumbled in response—U.S. crude dropped 5.8% in overnight trading. But when the fourth round of negotiations actually began Monday, there was nothing to announce. No breakthrough. No sign of movement. The selling continued. By Tuesday's Asian session, U.S. crude had slipped another 2.54% to $100.44 a barrel. Brent crude fell 2.27% to $104.42.
But the war was only part of the story. China reported 3,602 new confirmed COVID cases on Tuesday, more than double the 1,437 cases from the day before. The number itself was modest by pandemic standards, but it landed in a market already terrified of what a fresh outbreak could do to the world's second-largest economy. Hong Hao, head of research at BOCOM International, laid out the fear plainly: China's first-quarter growth could fall to near zero instead of the expected 5.5%. Production would suffer. Supply chains would tighten. The ripple would spread outward. "There's Ukraine, the risk of U.S. sanctions on China and rising Chinese domestic COVID cases," he said. "It does not look good."
The damage showed up immediately in Hong Kong. The Hang Seng Index dropped 3.8% early Tuesday, following an almost 5% selloff the day before. The main board was down 17% for the month. China's CSI300 index fell 2.3%. Across the region, the picture was uneven but mostly red. Australian shares slipped 0.5%. Tokyo's Nikkei Index managed a small gain of 0.17%, one of the few bright spots. U.S. markets had already stumbled Monday—the S&P 500 lost 0.74%, the Nasdaq fell 2.04%, while the Dow stayed mostly flat—and the weakness was expected to persist.
Underlying all of it was the anticipation of the Fed's decision. The central bank was meeting Wednesday and nearly certain to raise rates, the first increase since 2018. Markets had been pricing in this possibility for weeks, but the reality of it—combined with everything else—was pushing investors toward the exits. The two-year Treasury yield, which rises when traders expect higher Fed rates, touched 1.865%, up from 1.849%. The benchmark 10-year yield climbed to 2.1419%. Gold, typically a refuge during uncertainty, weakened to $1,949.21 per ounce. Everything that usually holds value when stocks fall was falling too. The only question left was whether the Fed would move aggressively or hold back—and whether the market could absorb the shock either way.
Notable Quotes
China's growth in the first quarter could be closer to zero than 5.5%. There's a ripple effect. There's Ukraine, the risk of U.S. sanctions on China and rising Chinese domestic COVID cases—it does not look good.— Hong Hao, head of research, BOCOM International
The Hearth Conversation Another angle on the story
Why did China's COVID numbers matter so much more on Tuesday than they had before? The case count wasn't enormous.
Because China is the factory floor of the world. A spike there doesn't just mean sick people—it means shutdowns, production halts, supply chains breaking. And investors were already spooked by Ukraine and the Fed. This was the third domino.
So the war in Ukraine was priced in by then?
Not really. But there was hope. When talks were scheduled to resume, oil prices fell sharply. The market was willing to believe in a quick resolution. Then Monday came with nothing to show for it.
And the Fed rate hike—was that a surprise?
No. Everyone knew it was coming. But knowing and experiencing are different things. When you're already nervous about growth in China and supply shocks from a war, the idea of the central bank tightening money suddenly feels like a punch.
Which market fell the hardest?
Hong Kong. The Hang Seng dropped 3.8% that day alone, and it was already down 17% for the month. Chinese stocks were leading the losses across the board.
Did anything go up?
Tokyo barely moved—up 0.17%. That was about it. Everything else was selling.