Interactive Investor

China stock crash has implications for these UK companies

15th March 2022 14:16

Graeme Evans from interactive investor

A return of Covid lockdowns has caused another round of aggressive selling of Chinese stocks, but the impact is being felt by businesses traded in London. Our City reporter calls out those stocks feeling the heat. 

Selling pressure on Prudential (LSE:PRU) shares has intensified after Covid-19 lockdowns returned in China to cast a further cloud over the insurer’s new focus on Asia and Africa markets.

The restrictions in the important tech-hub city Shenzhen come as Prudential grapples with the ongoing closure of Hong Kong’s mainland China border and faces criticism for appearing not to have any one in line to replace chief executive Mike Wells later this month.

Shares fell another 4% today and are down by more than a fifth this year, dashing hopes that 2022 might be the year that the Pru finally overcomes several years of underperformance.

The widely held stock is back below 1,000p for the first time since October 2020, which compares with the forecasts of 1,700p among some analysts as recently as last August.

Prudential continues to believe that its renewed focus on Asia will prove to be the right one strategically, given that the savings and investment market is developing rapidly in the region due to a growing middle class and as insurance penetration remains low.

The last piece of its restructuring jigsaw was filled in the autumn with the demerger of US-based Jackson National Life, having previously spun off its UK and European unit in the form of M&G (LSE:MNG).

Last week’s annual results showed a 13% rise in new business profit to $2.5 billion (£1.9 billion) but shares fell on the lack of an update about a new boss. Wells, who has been chief executive since 2015, leaves at the end of this month and finance director Mark FitzPatrick is not planning to stay beyond an interim period in charge.

Prudential wants its new chief executive to be based in Asia, but the impact of Covid-19 is likely to have complicated its search process.

The latest developments mean the reopening of the Hong Kong border appears as far off as ever, having been shut for 18 months amid some of the tightest restrictions in the world. In Prudential’s recent results, Hong Kong sales fell 27% as mainland China customers were prevented from buying insurance products in the territory.

Excluding Hong Kong, 2021 sales grew by 16% thanks to businesses in mainland China, India, Malaysia, the Philippines, Singapore and Thailand. Its China joint venture is now the Pru’s largest contributor to total sales after growth of 25% to $776 million (£593.6 million), highlighting the potential blow of this week’s return of Covid-19 restrictions.

Shenzhen is home to about 17 million people and one of China’s most affluent cities given that tech and manufacturing firms including Foxconn and Huawei have facilities there.

The potential for supply chain disruption and wider pressure on the Chinese economy meant the Brent crude price fell below $100 a barrel, having last week touched as high as $139.

The Hang Seng is down 10% so far this week, but UBS said it remains positive on the outlook for China after maintaining its most preferred stance on equities within its Asia strategy.

Today's weakening of commodity prices meant mining stocks including Glencore (LSE:GLEN) and Anglo American (LSE:AAL) lost 3%, while the FTSE 100 fallers board also featured Asia-facing bank Standard Chartered (LSE:STAN) after dropping 21.1p to 470p.

Several stocks were impacted by the China uncertainty in the FTSE 250 index, most notably Aston Martin Lagonda (LSE:AML) amid fears over potential disruption in one of its fastest-growing markets.

In its recent results, the luxury car business reported record sales in China along with strong initial demand in the country for its recently-launched mild-hybrid DBX Straight-Six model.

Shares in bootmaker Dr Martens (LSE:DOCS), meanwhile, fell 16.8p to 216p as China represents one of seven priority target markets for the company.

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