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Chinese markets slump as Covid protests spook investors

Police officers stand guard during a protest in Beijing - Bloomberg
Police officers stand guard during a protest in Beijing - Bloomberg

Chinese assets slumped Monday as a sense of chaos and uncertainty gripped traders amid growing Covid-19 protests across the country.

The Hang Seng China Enterprises Index declined more than 4pc early on Monday before paring losses by about half.

The onshore yuan weakened 0.4pc against the dollar, having plunged more than 1pc at the open, the most since May.

Protests spread over the weekend as citizens in major cities including Beijing and Shanghai took to the streets to express their anger on the nation’s Covid controls.

The rare show of defiance is raising the threat of a government crackdown, prompting investors to re-think their bets after jumping back in on reopening hopes.

“We might see some derisking around Chinese markets,” said Chris Weston, head of research at Pepperstone Group Ltd.

“We are seeing some outflows of the offshore yuan, which I think is a pretty good indication of how Chinese markets may fare.”

Goldman Sachs Group Inc. economists said they see some chance of a “disorderly” exit from zero-Covid in China, as the central government may soon need to choose between more lockdowns and more Covid outbreaks.

People have taken to the streets in multiple Chinese cities to protest against strict zero-Covid measures - Getty Images
People have taken to the streets in multiple Chinese cities to protest against strict zero-Covid measures - Getty Images

Reopening stocks

Property and tech shares were among the worst performers in the Monday selloff, while reopening stocks including airlines and restaurants proved relatively resilient.

The moves underscore a mixed response among traders as some brush aside the social unrest and focus more on the eventual zero-Covid exit.

“The protests create uncertainty but the destination of opening up has been set since the party congress,” said Robert Mumford, an investment manager at GAM Hong Kong Ltd.

“One suspects this sort of public pressure might encourage a faster pace of opening which would be a positive but it remains to be seen how the authorities react to recent events.”

Assets have rallied in November as directives for a less-restrictive pandemic approach, coupled with strong support for the property sector, gave investors confidence that the worst is well behind.

A growing number of Wall Street players had turned upbeat on China following Beijing’s policy steps to shore up the economy. On Friday, the People’s Bank of China lowered the reserve requirement ratio for the second time this year.

The rally has fizzled in the last few days as authorities grapple with a record number of Covid cases. 

Hong Kong’s Hang Seng Index fell 2.2pc as of 10.47am local time, while a separate gauge of Chinese tech stocks fell by a similar extent, having fallen more than 5pc earlier. On the mainland, the CSI 300 Index declined 1.7pc.

“Assuming the Covid policy would not change much, and we cannot rule out the risk that it gets tougher, the government will likely inject more liquidity to cool down the bond yields,” said Gary Ng, senior economist at Natixis SA in Hong Kong. “However, this will not be enough to calm the market.”