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Investors hope Beijing will lift COVID restrictions sooner as protests flood markets

By Karin Strohecker and Dhara Ranasinghe

LONDON (Reuters) – Rare protests sweep across China over Beijing’s zero COVID- The policy could spark a new wave of political uncertainty but could also hasten the reopening of the world’s second-largest economy, foreign investors said on Monday.

Chinese stocks suffered their worst day in a month on Monday and the yuan also slumped, while global stocks came under pressure and oil prices tumbled 3% as protesters showed civility since leader Xi Jinping Since taking power years ago, there have been unprecedented acts of disobedience.

“The protests are a short-term issue,” Seema Shah, chief strategist at market cap 20 asset manager Principal Global Investors, told Reuters, adding The latest events support the view that the winds are changing.

“While we have been cautious, an important shift is taking place as COVID reopens.”

The Chinese market has had a challenging year , due to a combination of political risk aversion following Russia’s February invasion of Ukraine and concerns about its economic growth due to strict COVID containment and fallout from its real estate sector’s woes.

Since Russia invaded Ukraine in February, Chinese bond portfolios have seen monthly outflows, totaling 500 in nine months, according to the institute . $1 billion International Finance (IIF). In October alone, Chinese stock portfolios lost $7.6 billion, the biggest loss since March.


However, hopes of Beijing easing some of the draconian COVID restrictions have recently been lifted, with domestic blue chips and Hong Kong indexes down more than

so far this year %, the market is off a one-year low.

Vincent Mortier, group chief investment officer at Amundi, Europe’s largest asset manager, said: “The latest events will strengthen the case for reopening.”

Mortier said, considering The impact of COVID-19 on youth unemployment in big cities and increased pressure on Beijing, which is keen to “avoid some social unrest”, has thus begun to become a political issue in China.

Demographics has been a major pressure point in China, with youth unemployment hitting a record high of around 20% in July.

If the protests continue, it will increase the risk premium, said Sean Taylor, chief investment officer for Asia Pacific at DWS Group.

833 million euro asset manager predicts that once China exits, the Chinese stock market may see 15-20% rebound with zero COVID, although the market may be “pretty challenging” until then.

Richard Tang, Asia equity research analyst at Julius Baer, ​​said offshore investors were more concerned about recent events than onshore investors, which could boost onshore equities.

“We think this divergence of views will drive A shares to outperform H shares,” Tang said.

Against this backdrop, investors will soon turn their attention back to the ruling Communist Party’s Central Economic Work Conference in December, which sets the economic agenda for the NPC meeting and may confirm COVID “policy pivot”.

Others are more cautious. Mark Haefele, chief information officer at UBS Global Wealth Management in Zurich, said social discontent over the zero-COVID policy has raised the risk of implementing and implementing government policies.

“We do not expect economic or market headwinds in China to abate significantly in the coming months,” Haefele said in a note to clients.

“As such, we remain neutral on China equities. We also see a weak recovery in China as a risk to the global economy and markets.”



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