China markets fall as protests over Covid lockdowns break out

Hong Kong
CNN Business
–

China Major stock indices and their currencies traded sharply lower on Monday, as well widespread protests Against the country’s strict Covid-19 restrictions over the weekend, it rattled investor sentiment.

Hang Seng in Hong Kong

(HSI) index It fell as much as 4.2% in early trade. It has since pared some losses and closed down 1.6%.. Hang Seng

(HSI) The China Enterprises Index, a leading index that tracks the performance of Chinese companies listed in Hong Kong, lost 1.7% at the market close.

In China, the Shanghai Composite fell briefly by 2.2%, before paring losses to finish 0.8% below Friday’s close. The Shenzhen Composite Technology Index settled down 0.7%..

The Chinese Yuan, also known as the Renminbi, fell against the US dollar on Monday morning. The internal yuan, which trades in the tightly controlled domestic market, weakened briefly by 0.9%. It was 0.5% lower at 7.213 per dollar by the afternoon. The foreign exchange rate, which is traded offshore, fell 0.3% at 7.213 per dollar.

Stephen Innes, managing partner of SPI Asset Management, said a weaker yuan indicates that “investors are ice-breaking in China,” adding that the currency market may be the “simplest barometer” for gauging what domestic and foreign investors think.

The markets tumble comes after protests erupted across China in an unprecedented show of defiance against the country’s increasingly tough and costly coronavirus policy.

In the country’s largest cities, from financial hub Shanghai to the capital, Beijing, residents gathered over the weekend to mourn the deaths from a fire in the capital. XinjiangThey spoke out against Zero Covid and called for freedom and democracy.

Such widespread scenes of anger and defiance, some of which stretched into the wee hours of Monday morning, are exceptionally rare in China.

Asian markets also fell broadly. South Korea’s Kospi lost 1.2%, Japanese Nikkei 225 index

(N225) shed 0.4%And the Australia’s S&P/ASX 200 was also down 0.4% at the market close.

US stock futures – an indicator of how the markets are likely to open – were down, with Dow futures down 0.3%, or 108 points. S&P 500 futures fell 0.5%, while Nasdaq futures fell 0.6%.

Oil prices have also fallen sharply, as investors worry that rising Covid cases and protests in China could dampen demand from one of the world’s largest oil consumers. US crude futures fell 2.4 percent to trade at $74.45 a barrel. Brent crude, the global oil benchmark, lost 2.6% to $81.5 a barrel.

On Friday, a day before the protests began, China’s central bank cut the amount of liquidity lenders must hold in reserve for the second time this year. Most banks’ reserve requirement ratio (RRR) has been cut by 25 percentage points.

The move was intended to prop up an economy crippled by strict Covid restrictions and a faltering real estate market. But analysts do not think this move will have a significant impact.

“Reducing program requirements now is like squeezing a chain, because we believe the real obstacle to the economy is the pandemic rather than insufficient loanable funds,” Nomura analysts said in a research report released Monday.

“From our point of view, ending the epidemic [measures] As soon as possible is the key to recovery in credit demand and economic growth.

China’s economy is currently caught in a tug-of-war between weak economic fundamentals and hopes of reopening, said Ennis of SPI Asset Management.

For formal institutions in China, there are no easy ways. He said accelerating reopening plans when new COVID cases rise is unlikely, given low vaccination coverage for seniors. “Mass protests would tip the scales in favor of a weaker economy and likely be accompanied by a huge surge in Covid cases, leaving policymakers with a huge dilemma.”

In the near term, he said, stock prices and China’s currency are likely to rise in “more significant uncertainty” about Beijing’s response to the ongoing protests. He expects social discontent to grow in China over the coming months, testing policymakers’ resolve to stick to their strict non-spread mandates.

But in the long term, the most realistic and likely outcome should be “quick relief.” [Covid] restrictions once the current wave recedes.

Goldman Sachs, in a research report published late Sunday, predicted that China could rescind its coronavirus non-spread policy earlier than previously expected, with “some chance of a forced and uncontrolled exit.”