On Monday, Chinese stocks had their worst day in a month, as recent monetary-easing measures failed to alleviate investor concerns about protests against strict COVID-19 curbs in the world’s second-largest economy, while the yuan fell against the dollar.
The United States’ crackdown on Chinese tech behemoths, citing national security concerns, also weighed on technology stocks.
Despite this, social unrest and an increase in coronavirus cases have fueled expectations of an earlier end to China’s zero-COVID policy, putting a floor under stocks and boosting tourism and consumer shares.
China’s blue-chip CSI 300 Index fell 1.1% after falling as much as 2.7% earlier in the day, the biggest daily drop since Oct. 28. The Hang Seng Index in Hong Kong fell 1.6%.
Against this backdrop, stock investors found little solace in the central bank’s decision on Friday to reduce banks’ required reserve ratio (RRR) in an effort to help the struggling economy. However, the widely anticipated RRR cut added downward pressure on the Chinese currency.
The onshore yuan fell as much as 1.1% to 7.2435 per dollar at one point, its lowest level since November 10, and finished the domestic session at 7.1999.
“The market does not like uncertainties that are difficult to price and the China protests clearly fall into this category. It means investors will become more risk-averse,” said Gary Ng, economist at Natixis.
The wave of civil disobedience is unprecedented in mainland China since President Xi Jinping took office a decade ago, and it comes amid growing dissatisfaction with his signature zero-COVID policy, as well as record-high daily infections.
While state media did not cover the protests, photos and videos of them spread on social media.
Meanwhile, daily new COVID cases in China reached a new high on Sunday, with over 40,000 new infections reported, prompting widespread lockdowns and other restrictions on movement and business across the country.
In new evidence of COVID’s economic impact on China, data released on Sunday showed that overall profits at Chinese industrial firms fell even further between January and October.
The majority of sectors in mainland markets fell, with shares in financials, real estate, and energy falling between 1.5% and 2%.
Following the Biden Administration’s sales ban, shares in Chinese surveillance equipment maker Dahua Technology Co, video surveillance firm Hangzhou Hikvision Digital Technology Co Ltd, and telecoms firm Hytera Communications Corp Ltd fell.
Consumer and tourism-related companies rose, defying the trend, as some investors bet that recent COVID flare-ups and social unrest would force China to abandon its zero-COVID policy sooner.
“The demonstrations … mean the current COVID policy mix is no longer politically sustainable. As cases surge, the beginning of some sort of de facto reopening now appears at hand,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics in a note.
A tourism sub-index increased by 4.2%, while stocks in Spring Airlines (601021.SS) increased by 4.7% and UTour Group increased by more than 7%.
Casino stocks rose 7.6% after the Macau government announced that its six existing casino operators would be given new licenses to operate in the world’s largest gambling hub beginning in January. Wynn Macau led the rally by more than 15%.
Hui Shan, Goldman Sachs’ chief China economist, predicts that China will reopen before the second quarter of next year, with a 30% chance of a forced and disorderly exit.
“The central government may soon need to choose between more lockdowns and more COVID outbreaks,” she wrote in a late Sunday note.
According to Gavekal’s Beddor, China is likely to make concessions to address the underlying concerns, which would imply that the center clarifies its instructions to local governments to discourage the use of the harshest COVID-19 containment measures.
Hong Kong-listed tech behemoths and real estate developers led the city’s market decline, with the Hang Seng Tech Index falling nearly 2% and the Hang Seng Mainland Properties Index falling 4.8%.
(Adapted from NewsWav.com)