Global stocks fell on Monday after protests in China against government policies over the Covid-19 coronavirus weighed on sentiment and added uncertainty about the future of the world’s second-largest economy.
The benchmark S&P 500 on Wall Street lost 0.9 percent, chopping at the index’s rise of more than 3 percent over the past month. The Nasdaq Composite Heavy Index fell 0.8 percent. The Stoxx 600 regional index in Europe fell 0.6 percent and the FTSE 100 index in London fell 0.2 percent.
Oil prices were steady in the late afternoon in London, with Brent crude, the international benchmark, down about 3 percent earlier in the day. The US West Texas Intermediate Index added 0.7 percent, erasing a decline of 1.8 percent.
In Hong Kong, Hang Seng China Enterprises fell 4.5 percent before easing back to 1.6 percent. The decline in China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks was as big as 2.8 percent before tapering to just over 1 percent.
Demonstrations broke out In Beijing, Shanghai and other cities over the weekend against the epidemic restrictions imposed by the government. Discontent has mounted since a fire broke out in the city of Urumqi last week that killed 10 people, prompting vigils across China as authorities deny claims that coronavirus restrictions hampered rescue efforts and prevented residents from escaping the blaze.
Emmanuel Cao, head of European equity strategy at Barclays, said the growing unrest in China had hit investors with a “reality check”.
“China’s reopening of hope was part of the upward year-end narrative,” Cao added. “Investors are now realizing that whatever direction travel is in a no-Covid situation, it will not be a smooth process.”
Traders said the protests have increased uncertainty about China, where rising coronavirus cases have put pressure on local officials to step up enforcement of President Xi Jinping’s tough law. Zero covid policy.
“Investor confidence has already been damaged this year, and it is difficult to understand the next direction of the market,” said Louis Tse, managing director of Wealthy Securities brokerage in Hong Kong.
Tse said investors were concerned about the lack of additional support for the Chinese economy as infections soared to record highs and undercut the rally that pushed the Hang Seng China Enterprises index up more than 17 percent this month.
The use of blank paper as a symbol of protest against censorship has caused problems for some listed Chinese companies. Shares of Shanghai M&G Stationery listed on the Shanghai Stock Exchange fell 3.1 percent on Monday. It explained in a filing to the exchange that the statement circulating on social media, which claimed that the company had stopped selling A4 paper to “protect national security”, was fraudulent.
The distorted view of the Chinese economy affected the renminbi. The Chinese currency fell 1.1 percent to 7.24 renminbi against the dollar.
The US dollar index traded 0.3 percent higher against a basket of six international peers, benefiting in part from “flare risks in China,” said Lee Hardman, currency analyst at MUFG.
Martin Beach, vice-president of Moody’s Investors Service, said the protests were “potentially negative for credit if they continue and produce a more robust response from the authorities”.
He added, “Although this is not our base case, this would lead to an increased level of uncertainty about the degree of political risk in China, spillover into damaged confidence and thus depreciation in an already weak economy.”
The turmoil affected stocks elsewhere in Asia, with Japan’s Topix down 0.7 percent, while South Korea’s Kospi index was down 1.2 percent.
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