Global stocks and oil prices slipped on Monday after protests in China against the government’s Covid-19 policies dragged on sentiment and added to uncertainty about the outlook of 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 1.6 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 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, 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 0.9 per cent in midday trading while London’s FTSE 100 dropped 0.3 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 nearly 3 per cent to trade at $81.18 a barrel, and US marker West Texas Intermediate shedding 2 per cent to hit $74.19.
Growing unrest in China has hit investors with a “reality check”, said Emmanuel Cau, head of European equity strategy at Barclays.
“China reopening hope was part of the bullish end of year narrative,” Cau added. “Investors now realise that whatever the direction of travel is on zero-Covid, it won’t be a smooth process.”
Traders said the protests 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 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 soared to records 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 muddled outlook for China’s economy weighed on the renminbi. The Chinese currency fell as much as 1.1 per cent to Rmb7.24 against the dollar.
The US dollar index traded in a basket of its international peers was steady, 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 on equities elsewhere in Asia, with Japan’s benchmark Topix down 0.7 per cent, while South Korea’s Kospi was down 1.2 per cent.