Chinese assets slumped yesterday as a sense of chaos and uncertainty gripped traders after growing protests against COVID-19 curbs complicated the nation’s path to reopening.
Chinese stocks were among the worst performers in Asia yesterday as investors trimmed holdings, concerned that the protests are creating more uncertainty for the nation’s path toward reopening.
The benchmark CSI 300 Index ended the day 1.1 percent lower, the biggest drop in a month.
The onshore yuan weakened 0.5 percent to 7.1991 per US dollar yesterday, after depreciating by 1.1 percent in early morning trading.
Protests spread over the weekend as people in major cities including Beijing and Shanghai took to the streets to express their anger over the nation’s COVID-19 controls.
The rare show of defiance is raising the threat of a government crackdown, prompting investors to rethink their bets after jumping back in on reopening hopes.
“We might see some de-risking around Chinese markets,” Pepperstone Group Ltd research head Chris Weston said.
“We are seeing some outflows of the offshore yuan, which I think is a pretty good indication of how Chinese markets may fare,” he added.
Goldman Sachs Group Inc forecasts a 30 percent probability of China reopening before the second quarter of next year, saying there is a chance of a “disorderly” exit.
“The central government may soon need to choose between more lockdowns and more COVID outbreaks,” Goldman Sachs chief China economist Hui Shan (閃輝) wrote in a note late on Sunday.
Local governments have struggled to “balance quickly” controlling the spread of the virus while obeying recent measures mandating a more targeted approach, she said.
Reopening stocks, including airlines and restaurants, proved relatively resilient in yesterday’s selloff, with Haidilao International Holding Ltd (海底撈) posting gains.
The moves underscore a mixed response among traders, as some brush aside the social unrest and focus more on the eventual “zero COVID-19” exit. Some market watchers are betting the swelling protests could even accelerate a loosening of restrictions.
“The protests create uncertainty, but the destination of opening up has been set since the party congress,” GAM Hong Kong Ltd investment manager Robert Mumford said.
“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,” he said.
Foreign investors were net sellers of 6 billion yuan (US$833 million) of onshore shares so far in yesterday’s session through trading links with Hong Kong.
China’s credit markets slid at yesterday’s open, as the spreads on investment-grade US dollar notes over Treasuries widened as much as 10 basis points, credit traders said.
Dollar bonds of some Chinese property firms, including Country Garden Holdings Co (碧桂園) and Longfor Group Holdings Ltd (龍湖地產), snap a three-day rally.
“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,” Natixis SA senior economist Gary Ng (吳卓殷) said in Hong Kong.
“However, this will not be enough to calm the market,” he added.
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