(Bloomberg) – Chinese assets tumbled on Monday as a sense of chaos and uncertainty enveloped traders after growing protests against Covid curbs complicated complicate the country’s reopening path.
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The Hang Seng China Enterprises Index fell more than 4% early Monday before cutting losses by about half. The domestic yuan weakened 0.4% against the dollar, after falling more than 1% at the open, its highest level since May.
Protests spread over the weekend as people in major cities including Beijing and Shanghai took to the streets to express anger over the nation’s Covid control measures. The rare show of defiance is heightening the threat of a government crackdown, prompting investors to rethink their bets after turning back in hopes of reopening. again.
Read: Covid-19 unrest in China erupts as people defy lockdown efforts (4)
“We could see some risk-off activity around the Chinese markets,” said Chris Weston, head of research at Pepperstone Group Ltd.
Economists at Goldman Sachs Group Inc. said it sees some possibility of a “disorderly” exit from Covid Zero in China, as the central government may soon have to choose between more lockdowns and more Covid outbreaks. .
Reopen stock
Real estate and technology stocks were among the worst performers during Monday’s sell-off, while reopening stocks including airlines and restaurants proved relatively resilient.
The moves show mixed reactions among traders as some put the social unrest aside and focus more on the eventual Covid Zero exit.
Robert Mumford, chief investment officer at GAM Hong Kong Ltd, said: “The protests create uncertainty but the destination of opening has been set since the party congress. positive but it remains to be seen how the government reacts to recent events.”
The asset rallied in November as less restrictive pandemic approach directives, coupled with strong support for the real estate sector, led investors to believe the worst was over. via.
A growing number of Wall Street players are bullish on China following Beijing’s policy steps to bolster the economy. On Friday, the People’s Bank of China lowered the reserve requirement ratio for the second time this year.
Read: Asian markets brace for impact as unrest in China hits sentiment
Protests have failed over the past few days as authorities grapple with a record number of Covid-19 infections.
Hong Kong’s Hang Seng index was down 2.2% at 10:47 a.m. local time while a separate gauge of Chinese tech shares also fell by a similar degree, having previously fallen more than 5%. On the mainland, the CSI 300 Index fell 1.7%.
Foreign investors have sold a net 6.3 billion yuan ($874 million) of domestic shares so far in Monday trading through trading links with Hong Kong.
China’s credit markets slid at the open on Monday, as the spread between the investment-grade dollar against Treasuries increased by as much as 10 basis points, according to credit traders. Dollar bonds of several Chinese real estate companies including Country Garden Holdings Co. and Longfor Group Holdings Ltd. The price increase lasted three days.
“Assuming Covid policy doesn’t change much and we can’t rule out the risk that as it gets tougher, the government will likely pump in more liquidity to cool bond yields,” said Gary Ng, analyst. senior economist at Natixis SA in Hong Kong, said. “However, this will not be enough to appease the market.”
–With support from Tania Chen, Georgina Mckay, Loretta Chen and Wei Zhou.
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