(Bloomberg) — Chinese shares fell on Tuesday after Beijing suspended classes at some schools due to rising virus cases, deepening concern that the government’s Covid Zero approach will weigh on the nation’s economic recovery and corporate earnings.
The benchmark CSI 300 Index closed 1% lower, with financial and energy stocks leading the drop while consumer discretionary shares also slid. China Tourism Group Duty Free Corp. slumped 7.8%, the worst performer and one of the biggest drags on the main gauge.
China’s capital halted classes at 18 primary and middle schools, at a time when the government’s stringent virus curbs have already been cited by companies and analysts for weak earnings in the third quarter. The latest measure will add to concerns that troubles for businesses may linger into the winter months.
“Investors are worried that Beijing’s virus measures may cool down China’s economic activities and hamper its recovery,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong.
Growing signals that the central bank is unlikely to ease monetary policy may have also contributed to the stock losses. Huang Yiping, a former member of the People’s Bank of China’s monetary policy committee, said in an interview with Bloomberg TV that the need for aggressive easing is “quite limited.”
“I think it’s more about liquidity conditions and expectations on easing which are fading fast,” said Marvin Chen, a Bloomberg Intelligence strategist.
A subgauge of the CSI 300 Index tracking financial shares fell 2.3%, the most since mid-September.
Hong Kong’s Hang Seng Index erased an earlier 1.9% gain to close 0.2% lower, while the Hang Seng Tech Index, which measures mostly Chinese online firms traded in the city, pared a jump of 4% to just 0.6%.
Still, the tech gauge snapped two days of losses after U.S.-listed Chinese shares rallied overnight. Growing consensus that the worst of Beijing’s regulatory clampdown is behind coupled with a possible easing of U.S.-Sino trade tensions also emboldened traders.
“The divergence in performance between U.S. and China tech since the start of the year seems to draw some markets’ attention on some opportunities for catch-up growth in Chinese tech,” said Jun Rong Yeap, a strategist at IG Asia Pte.
Read more: How China’s Big Tech Crackdown Unfolded Over a Year
The Communist Party is scheduled to hold its first convention in more than a year next week, a key event where leaders will clarify a number of policy stances. Traders will be keenly watching for any clues as to whether there might be further regulatory pressures ahead for private industry, said Daniel So, strategist at CMB International Securities.
(Adds details on share impact of school suspensions.)
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