China’s stock market may collapse at the opening
2022.11.27 08:22
China’s stock market may collapse at the opening
Budrigannews.com – As trading resumes following the weekend, protests against China’s Covid curbs may reflect negatively on the nation’s assets and overall risk sentiment in global markets.
Investors will likely shift toward haven assets such as the dollar, the yen, and Treasuries before it becomes clear how Beijing will respond to the latest surge in discontent. The threat of rising social instability and a government crackdown will likely cause this. There may be less demand for commodities, stocks, and currencies tied to trade with China, like the Australian dollar and Korean won.
The dramatic turn of events adds new uncertainty to the world’s No. 2 economy’s prospects. Economy and its markets, as well as sweeping property rescue efforts and recent restrictions on viruses that have contributed to a remarkable rebound in Chinese stocks. A deadly fire in a locked-down apartment block in a western city sparked the protests, which also threaten to weaken China’s moderate and widely anticipated monetary easing move on Friday.
According to Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd. in Hong Kong, “Sentiment may take a hit as the protests fuel concern over social instability in China” and “foreign investors may trim exposure to Chinese investment.”The Zero Covid policy appears to be reaching its limit. To alleviate discontent, the Covid measures must be relaxed or refined further.
According to Cheung, the yuan will likely weaken, and haven demand may boost the dollar.
Since Beijing reduced testing and quarantine periods on November 11, a rally that has increased the MSCI China Index’s value by almost $370 billion has re-emerged in Chinese markets.Earlier this month, stronger measures to alleviate property woes led to a rebound in developer bonds, and the yuan surged to an eight-week high.
However, given that some investors are beginning to believe that Chinese stocks may have reached a crossroads following the recent sharp gains, the protests may dampen sentiment. This is the case in spite of a growing chorus of bullish China calls on Wall Street, which cited favorable policies and low valuations.
The unrest in China may also dampen hopes that a gauge of currencies from emerging markets will experience its strongest monthly rally in six years on global markets.
According to Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp., “the market will be confused and risk appetite will take a hit” whenever China’s Covid management measures contradict the Covid policy. “The market volatility may persist for a while until people are convinced about the consistency of the logic behind” the measures.
