I get that we'd all rather talk about anything than Covid at this point, but it's still surprising how little coverage the spike in cases in Asia is getting at the moment.  

China right now is experiencing its worst outbreak since March of 2020. And unlike the U.S., which has more or less adopted a "coexistence" strategy, China is still pursuing a "zero-Covid" approach that requires lockdowns wherever the virus is spreading. Which is to say that the economic ramifications of Covid spreading in China--the world's manufacturing hub and second-biggest economy--are far bigger than elsewhere. 

 To highlight the point, Apple's key supplier, Foxconn, was forced to suspend production at its headquarters (although not its major production center) last night after its host city, Shenzhen, imposed a week-long work stoppage for non-essential businesses. It's not that surprising that Shenzhen would be impacted, given its close proximity to Hong Kong, which currently has the world's highest death rate from Covid. But it shows how difficult it might be for China to avoid a larger outbreak this time given just how contagious the Omicron variant has proven to be.  

It's already foiled other previous Covid containment zones like Hong Kong, South Korea, and New Zealand. South Korea has the world's highest case count over the past month, at 5.2 million, according to Johns Hopkins. New Zealand has spiked from basically zero to more than 20,000 new cases a day in recent weeks. And in Hong Kong--whose relatively high death rate is attributed to its surprisingly low vaccination rate--as Omicron has surged, the stock market has slumped to its lowest level since 2016.  

China's market has overall held up a little better so far--the Shanghai Composite is down 11% this year, versus 17% for the Hang Seng. But Chinese stocks just had a terrible week after the SEC called out five companies for failing to meet audit requirements, which could result in their future delisting. I asked Brendan Ahern, who runs the "KWEB" China internet ETF for KraneShares, about this on Friday. But this has been a known risk for some time, as he said; it smells to me like something else is going on. 

That "something else" may simply be the larger anxiety about the Chinese economy right now. You've got Covid spreading, the Chinese trying to walk a fine line between Russia and the West amid the Ukraine attacks, and the aftermath of the country's major tech crackdown over the past year. Shares of a favorite target, Didi, are trading at a $1.85 this morning after going public in the U.S. at $14 last summer. 

The KWEB ETF, which listed in 2013, is down another 11% today, to an all-time low of just over $21 a share. Last February, it was trading over $102. Higher interest rates, which have collapsed valuations in  high-multiple internet stocks globally, also haven't helped.  

"Due to rising geopolitical and macro risks, we believe a large number of global investors are in the process of reducing exposure to the China internet sector," wrote J.P. Morgan analysts this morning as they downgraded shares of Alibaba to underweight (you don't say!). "We're also turning more cautious on the company's near-to-mid-term business outlook, given hiking inflation and the weakening consumption confidence caused by the Covid resurgence in China." 

They slashed their price target to $65 from $180; Alibaba shares are trading around $81 this morning, down from over $300 at their highs eighteen months ago. The firm also downgraded JD.com, cutting their price target to $35 from $100, and Pinduoduo, cutting it to $23 from $105.  

One bright spot, if you could call it that, is that oil prices are also slumping back towards $100 a barrel this morning as it suddenly looks like global demand may come off the boil a bit. "With a good part of China being shut due to Covid, the demand for oil is down," wrote Natalliance's Andy Brenner this morning. But, he warned, "while this may look good on the surface [for relief on oil prices], the shutdown in China exacerbates the supply chain issues." 

And that may be why interest rates aren't behaving exactly as you might expect right now. They're up this morning, not down. The 10-year Treasury yield just popped above 2.1%, as investors brace for the Fed's meeting this week where they're expected to raise rates for the first time since the pandemic hit. Supply chain issues are the kind of thing that could keep inflation higher than normal for longer now--the very issue the war on Ukraine has also caused.  

The severity of lost demand from China obviously depends on the severity of its Covid outbreaks. If authorities can keep Covid from spreading, the world should be able to enjoy a little more growth and a little less inflation this year. If not, expect to hear more and more about that dreaded word, "stagflation."  

See you at 1 p.m! 

Kelly

Twitter: @KellyCNBC

Instagram: @realkellyevans