China’s main stock and currency indices traded flat on Monday, as widespread protests against the country’s anti-Covid-19 restrictions over the weekend weighed on investor sentiment.
Hong Kong Hang Seng Index (HSI). fell as much as 4.2% in early trade. It reversed some losses and closed up 1.6%. The Hang Seng (HSI) China Enterprises Index, the main index that tracks the performance of Chinese companies listed in Hong Kong, lost 1.7% recently.
In China, the benchmark Shanghai Composite fell 2.2%, before paring losses to end 0.8% lower than Friday’s close. The tech-heavy Shenzhen Composite Index was down 0.7%..
The Chinese yuan, also known as the renminbi, fell against the US dollar on Monday morning. The onshore yuan, which trades in the regulated domestic market, has briefly weakened by 0.9%. It was 0.5% down at 7.213 per dollar in the afternoon. The offshore exchange rate, which trades abroad, changed last hand 0.3% down to 7.213 per dollar.
The weakening yuan suggests that “investors are cooling off in China,” said Stephen Innes, managing director of SPI Asset Management, adding that the stock market could be a “barometer the easiest “to find out what the domestic and foreign investors are thinking.
The markets fell after protests erupted across China in an unprecedented show of dissent against the country’s tough policies and zero-Covid tariffs.
In the largest cities in the country, from the financial capital of Shanghai to the capital of Beijing, residents gather at the weekend to mourn the dead from the Xinjiang fire, speak out against zero-Covid and called for freedom and democracy.
Such widespread scenes of anger and rebellion, some of which went up early on Monday, are rare in China.
Asian markets are also very low. South Korea’s Kospi lost 1.2%, Japan’s Nikkei 225 (N225) lost 0.4%, and Australia’s S&P/ASX 200 fell by 0.4% by the close of trading.
US stock futures – an indicator of how the market might open – fell, with Dow futures down 0.3%, or 108 points. Futures for the S&P 500 fell 0.5%, while futures for the Nasdaq fell 0.6%.
Oil prices also fell sharply, with investors worried that the handling of Covid cases and protests in China could damage demand for one of the world’s biggest oil buyers. US crude futures fell 2.4% to trade at $74.45 a barrel. Brent crude, the global oil benchmark, lost 2.6% to $81.5 a barrel.
On Friday, a day before the protests began, China’s central bank cut interest rates for lenders for the second time this year. The reserve requirement ratio (RRR) for most banks has been reduced by 25 percent.
The aim is to boost the economy of the severe restrictions of Covid and the property market that is suffering from the disease. But analysts don’t think the move will have much of an impact.
“Cutting the RRR now is like tightening the rope, as we believe the real economic constraint is the pandemic rather than the lack of lending,” analysts from Nomura said in a research report released on Monday.
“In our opinion, stopping this disease [measures] as soon as possible is the key to bringing about recovery in credit demand and economic growth,” they said.
Innes from SPI Asset Management said China’s economy is currently caught in the middle of a battle between a shrinking economic base and the hope of recovery.
“For Chinese government agencies, there is no easy way out. Developing a plan to open quickly when new Covid cases are rising is impossible, because of the low vaccination coverage of the elderly,” he said. -weak and likely to be accompanied by a high number of surgeries and Covid cases, leaving policymakers with a big problem.”
In the near future, he said, Chinese equities and currencies may be priced with “more uncertainty” in Beijing’s reaction to the ongoing protests. It is expected that social discontent may increase in China in the coming months, testing the decision of the legislature to stick to its zero-Covid law.
But in the long run, the result should be “fast loosening [Covid] prevention once the current wave stops,” he said.
Goldman Sachs, in a research report published late Sunday, predicted that China could remove the zero-Covid-Covid policy before the first time, with “the possibility of getting out of coercion and nonsense.”