Investors hope Beijing lifts COVID curbs faster as protests stifle markets

Investors hope Beijing lifts COVID curbs faster as protests stifle markets

  • Dozens of campus protesters parade civil disobedience
  • No sign of new protests in Beijing and Shanghai on Monday
  • Chinese bonds and equities suffered strong outflows in 2023

LONDON, Nov 28 (Reuters) – Rare protests spreading across China against Beijing’s zero COVID-19 policy may have sparked a fresh wave of political uncertainty, but could also hasten the reopening of the world’s second-largest economy, officials said. foreign investors said on Monday.

Chinese stocks suffered their worst day in a month (.CSI300) on Monday and its currency also fell, while global stocks came under pressure and oil prices fell 3% as protesters demonstrated of civil disobedience unprecedented since leader Xi. Jinping took power ten years ago.

“Protests are a short-term concern,” Seema Shah, chief strategist at $500 billion senior asset manager Principal Global Investors, told Reuters, adding that the latest events supported the idea that the winds were changing. .

“While we have been cautious, there is a significant shift underway with the reopening of COVID.”

Chinese markets have had a difficult year, suffering from a mix of political risk aversion following Russia’s invasion of Ukraine in February, as well as worries about its economic growth given the restrictions strict COVID-related and fallout from problems in its real estate sector.

Chinese bond portfolios have seen outflows every month since Russia invaded Ukraine in February, totaling $105.1 billion over nine months, according to data from the Institute of International Finance (IIF). Chinese equity portfolios lost $7.6 billion in October alone, the most since March.


However, hopes that Beijing might ease some of its tough COVID restrictions had recently lifted markets off their lows in a year that saw the domestic blue chip (.CSI300) and Hong Kong index (. HSI) drop more than 20% year over year. -Date.

“The latest events will strengthen the case for reopening,” said Vincent Mortier, group chief investment officer at Amundi, Europe’s largest asset manager.

The COVID-related economic pain had started to become a political issue in China, given the impact on youth unemployment in major cities, and adding to the pressure on Beijing, which was keen to “avoid some social unrest”, Mortier said.

Demographics have been a major pressure point for China, which saw youth unemployment hit a record high of around 20% in July.

If the protests were to continue, it would increase the risk premium, said Sean Taylor, chief investment officer for Asia-Pacific at DWS Group.

The 833 billion euro asset manager expects Chinese stocks could see a 15-20% rise once China emerges from zero-COVID, although markets could be ‘quite difficult’ until there.

Richard Tang, Asian equity research analyst at Julius Baer, ​​said offshore investors were more concerned about recent events than their onshore counterparts, which could boost onshore stock markets.

“We believe this divergence of views will cause A-shares to outperform H-shares,” Tang said.

Tang predicted that if there was no major escalation in the situation, investors would soon focus on the ruling Communist Party’s Central Economic Work Conference in December, which sets the economic agenda for the parliamentary session. , and could confirm a COVID “political pivot”.

Others were more cautious. Social unrest resulting from the zero-COVID policy has added to risks in the execution and implementation of government policies, said Mark Haefele, CIO of global wealth management at UBS in Zurich.

“We do not expect the economic or market headwinds in China to ease significantly in the coming months,” Haefele said in a note to clients.

“As a result, we remain neutral on Chinese equities. We also see China’s slow recovery as a risk to the global economy and markets.”

Reporting by Karin Strohecker and Dhara Ranasinghe in London, Summer Zhen in Hong Kong Editing by Gareth Jones

Our standards: The Thomson Reuters Trust Principles.

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