Global stocks slip after China’s zero-Covid protests
Global stocks and oil prices slipped on Monday after protests in China against the government’s Covid-19 policies weighed down on market sentiment and added to uncertainty about the outlook for the world’s second-largest economy.
In Hong Kong, the Hang Seng China Enterprises index dropped as much as 4.5 per cent before pulling back to shed 1.5 per cent. The decline on China’s CSI 300 index of Shanghai- and Shenzhen-listed shares was as great as 2.8 per cent before it was trimmed to about 1.1 per cent.
Demonstrations broke out in Beijing, Shanghai and other cities over the weekend against government-induced pandemic restrictions. Discontent has surged since a fire in the city of Urumqi killed 10 people on Thursday, prompting vigils across China as authorities denied allegations that coronavirus restrictions had hampered rescue efforts and prevented residents from escaping the blaze.
Europe’s regional Stoxx 600 slid 0.8 per cent in mid-morning trading on Monday, while London’s FTSE 100 dropped 0.5 per cent. The S&P 500 was set to shed 0.9 per cent, as suggested by futures pinned to the index, when trading begins on Wall Street.
Oil dropped sharply, with Brent crude, the international benchmark, down 2.8 per cent to trade at $81.31 a barrel, and US marker West Texas Intermediate shedding 2.8 per cent to hit $74.12.
Traders said the protests added to uncertainty about China’s direction as a rise in Covid-19 cases has increased pressure on local officials to step up enforcement of President Xi Jinping’s strict zero-Covid policy.
“Investor confidence has already been battered this year, and it’s difficult to comprehend what the direction of the market will be next,” said Louis Tse, managing director of Hong Kong-based brokerage Wealthy Securities.
Tse said investors were concerned about a lack of additional support for China’s economy as infections hit record highs and undercut a rally that had pushed the Hang Seng China Enterprises index up more than 17 per cent this month.
The use of blank paper as a symbol of protest against censorship caused trouble for some listed Chinese companies. The Shanghai-listed shares of Shanghai M&G Stationery, a paper supplier, fell as much as 3.1 per cent on Monday. It clarified in an exchange filing that a statement circulating on social media, which claimed the company had halted sales of A4 paper “to safeguard national security”, was a forgery.
The increasingly muddled outlook for China’s economy also weighed down on the renminbi. The Chinese currency fell as much as 1.1 per cent to Rmb7.24 against the dollar.
The US dollar index measuring the greenback against its international peers sank 0.4 per cent in early European trading, benefiting in part from the “flare-up in China risks”, said Lee Hardman, a currency analyst at MUFG.
Martin Petch, vice-president at Moody’s Investors Service, said the protests “have the potential to be credit negative if they are sustained and produce a more forceful response by the authorities”.
“Though this is not our base case,” he added, “this would lead to an increased level of uncertainty over the degree of political risk in China, spilling over into damaged confidence and hence consumption in an already weakened economy.”
The unrest weighed down on equities elsewhere in Asia, with Japan’s benchmark Topix down 0.7 per cent, while South Korea’s Kospi and Taiwan’s Taiex were both off 1.5 per cent.
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