(Bloomberg) – Protests against China’s Covid-19 curbs could cast a shadow over the nation’s assets and broader risk sentiment in global markets as trading resumes after the weekend.
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Before it becomes clear how Beijing will respond to the latest wave of rising discontent, the threat of growing social unrest and government repression is likely to prompt investors to turn to financial markets. safe-haven assets from the dollar to the yen and Treasuries. Demand for stocks in commodities and currencies tied to trade with China, including the Australian dollar and South Korean won, could weaken.
The dramatic turn of events adds new uncertainties to the outlook for the world’s No. 2 economy and its markets, as well as the recent easing of virus control measures and the Extensive asset rescue efforts have helped China’s stocks recover significantly. The protests, sparked by a deadly fire in a blockaded apartment block in a western city, also threaten to further dilute the bank’s much-anticipated, moderate monetary easing step. Central China on Friday.
Ken Cheung, Asia head of forex strategy at Mizuho Bank Ltd. in Hong Kong, said: “Sentiment may be affected as protests raise concerns about social unrest in China and foreign investors may limit their investment exposure. of China”. “It looks like the Zero Covid policy is reaching its peak. More easing or refinement of Covid measures will be needed to limit discontent.”
Cheung said the yuan is likely to weaken while safe-haven demand could boost the greenback.
Optimism has resurfaced in Chinese markets since Beijing cut quarantine and returned to testing on November 11, triggering a rally that has added nearly $370 billion. on stock values in the MSCI China Index. The yuan rose to an eight-week high earlier this month, while stronger measures to ease real estate troubles also led to a rebound in developer bonds.
However, the rallies could dampen the mood, especially as some investors are starting to think that Chinese stocks may have hit a threshold after recent strong rallies. This comes despite growing calls for optimism about China on Wall Street, citing cheap pricing and friendlier policies.
In global markets, unrest in China could also dash hopes that an emerging market currency gauge will record its best monthly gain in six years.
Tommy Xie, head of Mainland China research at Oversea-Chinese Banking Corp, said: “The market volatility could linger for a while until people are convinced of the consistency. of the logic behind” China’s Covid management measures. out of the Covid policy, the market will be confused and the risk appetite will suffer.”
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