China's CSI 300 stock index falls to 2-year low as widespread COVID-10 lockdowns dent economic outlook

• Chinese stocks sank Monday as Beijing faces a potential mass lockdown because of COVID infections.
• China's capital would join Shanghai and other cities under strict quarantine measures.

Chinese stocks dropped Monday as residents in the country's capital face a potential mass lockdown amid a COVID infection spike, heightening worries that the world's second-largest economy could slow down further.

In Beijing, residents rushed to buy supplies as officials began mass testing for the coronavirus. Despite cases of just 70 in the city as of Monday, recent increases have prompted officials to quarantine residents in one Beijing neighborhood, sparking fears of a citywide lockdown.

The CSI 300, which tracks 300 large- and mid-capitalization stocks traded in Shanghai and Shenzhen, lost 4.9% to end at 3,814.91, the weakest finish since April 2020. The Hang Seng Index declined by 3.6%, and the Shanghai Composite fell by 5.1%.

Beijing, which has more than 21 million residents, could join Shanghai, China's largest city with 25 million residents, in a lockdown. Shanghai is in its fourth week of restrictions, and residents in other areas including the manufacturing hub of Shenzhen have also been under stay-at-home orders.

"China's zero-COVID policy may turn into a zero-growth policy," David Donabedian, chief investment officer of CIBC Private Wealth US, in a note Monday. "China plays a huge part in the global supply chain, so closing factories and ports has created a shortage mentality that is front and center in the financial markets right now."

Wider lockdowns risk putting more pressure on the Chinese economy. Chinese officials last month set its 2022 growth target at 5.5%, the lowest since 1991.

Underscoring economic concerns about China, the yuan sank by more than 1% on Monday, extending recent losses. To halt the slide, the People's Bank of China on Monday cut the amount of money it requires banks to hold in their foreign currency reserves, to 8% from 9%.

Global growth concerns also weighed on US stocks, putting the S&P 500 on course for a fourth straight loss. The US stock market's so-called fear gauge, the Cboe VIX Volatility Index, rose to around a six-week high.