Chinese stocks snapped a two-day rally sparked by reopening speculation, as the nation’s top health body reiterated its commitment to Covid Zero and the Federal Reserve’s hawkish comments led to a global selloff.
(Bloomberg) — Chinese stocks snapped a two-day rally sparked by reopening speculation, as the nation’s top health body reiterated its commitment to Covid Zero and the Federal Reserve’s hawkish comments led to a global selloff.
A gauge of Chinese shares trading in Hong Kong slumped as much as 3.5% on Thursday after a two-day advance of over 8%. The Hang Seng Index also lost more than 3%. Stocks tied to reopening — including casinos and retailers — and technology, were among the worst performers in the market.
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Equities soared earlier this week as unverified social media posts triggered frenzied speculation that after years of adhering to Covid Zero, authorities are outlining measures to open up the economy. Such hopes were given a harsh reality check after the National Health Commission said its zero-tolerance approach remains the overall strategy to fighting Covid-19.
“The reopening bounce was bound to hit air pockets lower without a formal acknowledgment from party officials,” said Stephen Innes, a managing partner at SPI Asset Management. Yet even after the adherence to Covid Zero by health officials, “investors are still thinking about where there is smoke, there is fire. And will be looking for any subtle signs the reopening is getting pushed up.”
Li Ning Co. and Haidilao International Holding Ltd. plunged at least 5% each in Hong Kong, while a Bloomberg index of Macau casino shares fell as much as 3.1%. On the mainland, the CSI 300 Index lost more than 1%.
Read: China Reopening Stocks Fall as Govt Reiterates Firm Covid Rules
The last couple of weeks have brought wild swings for Chinese markets — first with a historic selloff following policy disappointment from the Communist Party congress, then a sudden surge over the last two days.
“The market is very short-term oriented,” Thomas Fang, head of China global markets at UBS Group AG, said on Bloomberg Television, adding that Covid is “definitely one of the key focus” areas for the market.
As stocks rallied, turnover in the world’s second-biggest stock market climbed above the 1-trillion yuan ($137 billion) mark on Wednesday, the first time in about two months.
All of this came even as China had shown little indication of changing its official Covid stance, with the latest lockdown of the area around Foxconn Technology Group’s main plant in Zhengzhou highlighting that economic growth still takes a back seat over pandemic control.
“I think the market may be misinterpreting the pace of reopening, as it may only come gradually like in Hong Kong, with a reduction in quarantine times likely as the first step,” said Marvin Chen, a strategist at Bloomberg Intelligence. “Local governments are still likely to adhere to Covid-Zero until broader measures are announced.”
–With assistance from Charlotte Yang and Catherine Ngai.
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