Global stocks slip after China’s zero-Covid protests

Global stocks slip after China’s zero-Covid protests

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Global stocks fell sharply on Monday after protests in China against the government’s strict Covid-19 policies prompted investor worry over the outlook for the world’s second-largest economy.

Wall Street’s benchmark S&P 500 index closed 1.5 per cent lower, while the tech-heavy Nasdaq Composite lost 1.6 per cent. These losses were the most severe since November 9, the first session following the US midterm elections. They also cut into strong gains in equities this month.

In Hong Kong the Hang Seng China Enterprises Index dropped as high as 4.5 percent before regaining its lost 1.6%. The decline on China’s CSI 300 index of Shanghai- and Shenzhen-listed shares was as big as 2.8 per cent before it was trimmed to just over 1 per cent.

Demonstrations broke out in Beijing, Shanghai and other cities over the weekend against government-induced pandemic restrictions. Discontent has intensified since a fire in the city of Urumqi killed 10 people last week, leading to vigils across China as authorities denied allegations that coronavirus restrictions had hampered rescue efforts and prevented residents from escaping the blaze.

The US dollar index traded 0.7% higher against six international peers, largely due to the “flare up in China risks”, according to Lee Hardman, a currency analyst from MUFG.

The growing unrest in China has presented investors with a “reality test”, according to Emmanuel Cau, Barclays’ head of European equity strategy. “

“China reopening of hope was part the bullish end to-of-year narrative,” Cau said. “Investors now realise that whatever the direction of travel is on zero-Covid, it won’t be a smooth process.”

International benchmark Brent crude oil settled 0.5 per cent lower at $83. 19 a barrel, after declining more than 3 per cent earlier in the session.

Traders said the protests had added to uncertainty about China as a rise in coronavirus infections 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 in this year and it’s hard to understand what the future direction of the market will look like,” said Louis Tse (managing director of Wealthy Securities, a Hong Kong-based brokerage.

Tse said investors were concerned about a lack of additional support for China’s economy as infections soared to records and undercut a rally that had pushed the Hang Seng China Enterprises index up more than 17 per cent this month.

Some Chinese companies were unable to use blank paper as a protest against censorship. Shanghai M&G Stationery, which is a paper supplier, was down as much as 3.1% on Monday. In an exchange filing, it clarified that a social media statement that claimed that the company had stopped selling A4 paper “to protect national security” was a fabrication.

Martin Petch (Vice-President at Moody’s Investors Service) stated that the protests “have potential to be credit negative” if they continue and are met with a more forceful response from 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 on equities elsewhere in Asia, with Japan’s benchmark Topix down 0.7 per cent, while South Korea’s Kospi was off 1.2 per cent.

Europe’s regional Stoxx 600 slid 0.6 per cent and London’s FTSE 100 dropped 0.2 per cent.

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