China Markets Slide as Covid Protests Put Investors on Edge

(Bloomberg) — Chinese stocks tumbled and the yuan weakened as protests against Covid curbs erupted across cities, casting a shadow over the nation’s reopening path and putting investors on edge.

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The Hang Seng China Enterprises Index slumped more than 4% early Monday, paring this month’s advance to less than 16%. The onshore yuan plunged 1%, the most since May, to 7.2399 per dollar as risk appetite faded.

Protests spread over the weekend as citizens in major cities including Beijing and Shanghai took to the streets to express their anger on the nation’s Covid controls. The rare show of defiance is raising the threat of a government crackdown, prompting investors to re-think investment plans after jumping back in on reopening hopes.

Read: China Covid Unrest Boils Over as Citizens Defy Lockdown Efforts (4)

“We might see some derisking around Chinese markets,” said Chris Weston, head of research at Pepperstone Group Ltd. “We are seeing some outflows of the offshore yuan, which I think is a pretty good indication of how Chinese markets may fare.”

Goldman Sachs Group Inc. economists said they see some chance of a “disorderly” exit from Covid Zero in China, as the central government may soon need to choose between more lockdowns and more Covid outbreaks.

The latest developments underscore China’s rocky path to reopening as the nation grapples with a record number of Covid cases. Assets have rallied in November as directives for a less-restrictive pandemic approach, coupled with strong support for the property sector, gave investors confidence that the worst is well behind.

Read: Asian Markets Brace for Impact as China Unrest Hits Sentiment

Stocks were swept in broad selloff on Monday, with Hong Kong’s Hang Seng Index falling as much as 4.2% and a separate gauge of Chinese tech stocks down more than 5%. On the mainland, the CSI 300 Index declined as much as 2.8%, while yields on the benchmark note gained one basis point to 2.83%.

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Foreign investors were net sellers of 3.8 billion yuan ($525 million) of onshore shares so far in Monday’s session via trading links with Hong Kong.

A growing number of Wall Street players had turned upbeat on China following Beijing’s policy steps to shore up the economy. Monday’s setback comes even as the People’s Bank of China stepped up support for the economy, lowering the reserve requirement ratio for the second time this year late on Friday.

–With assistance from Tania Chen and Georgina Mckay.

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