Chinese stocks listed in the US rallied Monday, erasing losses from premarket trading, amid hope that nationwide protests that roiled China will lead to a quicker shift in Beijing’s Covid Zero policies.
(Bloomberg) — Chinese stocks listed in the US rallied Monday, erasing losses from premarket trading, amid hope that nationwide protests that roiled China will lead to a quicker shift in Beijing’s Covid Zero policies.
The exchange-traded KraneShares CSI China Internet Fund, which holds more than 40 Chinese stocks, jumped 4.7% at 9:45 a.m. in New York, erasing a decline of as much as 1% in the premarket session. E-commerce firm Pinduoduo Inc. rallied 15% after better-than-expected earnings. KE Holdings, a platform that facilitates housing transactions, jumped 6.9% as China’s securities regulator issued new measures to support listed housing developers.
Stocks that are most sensitive to economic reopening rose, including restaurant operator Yum China Holdings Inc. and online travel agency Trip.com Group Ltd. Internet giants like Alibaba Group Holding Ltd. and JD.com Inc. also rallied after slumping in Hong Kong.
Protesters took to the streets in various cities and universities across China over the weekend in a rare act of defiance against the government and its landmark strategy of lockdowns and mass testing campaigns. The demonstrations were fueled by a deadly fire in a high-rise apartment block in Urumqi, with some protesters saying virus restrictions hampered rescue efforts. Local officials denied that.
Although the social tension may help accelerate China’s reopening, “it is undeniably adding another layer of uncertainty for the Chinese market at the moment when most of the investors are re-calibrating their positions in preparation for 2023,” said Xiadong Bao, a fund manager at Edmond de Rothschild Asset Management in Paris.
The civil unrest is adding another twist to the turbulent Chinese stock market, which has been on a recovery path since Beijing loosened some Covid restrictions this month in a surprise move. The MSCI China Index is on pace for its best month this century, but remains down 27% for the year as of Friday’s close, with investors still waiting for a clear signal that Beijing is softening its zero-tolerance stance toward the pandemic.
Investors will pay close attention to how protests pan out this week. While China’s government hasn’t publicly responded to the unrest, some localities — including the capital city of Beijing — have been paring back restrictions despite surging Covid cases. A local official in the capital said movement restrictions imposed to trace the source of Covid or identify those infected generally must not exceed 24 hours.
“We don’t expect such protests to last long or further spread given how they were triggered, and there is no organized structure behind them,” said Neo Wang, Evercore ISI managing director for China research. “Political risk in China remains very low.”
Still, Mark Mobius, founding partner at Mobius Capital Partners, said in an interview with Bloomberg Television that Chinese markets will suffer in the short term if Beijing cracks down on protesters. And with virus caseload spiking and public discontent boiling over, Goldman Sachs Group Inc. economists said China could face a “disorderly” exit from its Covid Zero policies.
“The path to reopening is likely to be noisy with local infections at risk of remaining high in winter months,” Citigroup Inc. economists led by Johanna Chua said in a note. While the protest and further tightening in Covid restrictions “are unlikely to bode well for sentiment, we are cautious not to interpret these as overly bearish,” they said.
–With assistance from Yiqin Shen.
(Updates with details and comments throughout after the market opens.)
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