Asia stocks, oil tumble as China protests spook markets

SYDNEY – Asia stocks tumbled and oil slid on Monday as protests against Covid-19 curbs erupted across China’s cities, casting a shadow over the nation’s reopening path and putting global investors on edge.

Stocks were swept in a broad sell-off, with Hong Kong’s Hang Seng Index falling as much as 4.2 per cent and a separate gauge of Chinese tech stocks down more than 5 per cent. On the mainland, the CSI 300 Index declined as much as 2.8 per cent, while the onshore renminbi plunged 1 per cent, the most since May, to 7.2399 per US dollar as risk appetite faded.

Foreign investors were net sellers of 3.8 billion yuan (S$728 million) of onshore shares so far in Monday’s session via trading links with Hong Kong. 

Japan’s Nikkei stock index was down 0.76 per cent and South Korea’s Kospi index retreated 1.08 per cent, while Australian shares lost 0.43 per cent.

In Singapore, the Straits Times Index was down 0.62 per cent at 10.21am.

The S&P 500 and Nasdaq futures both fell, pointing to possible declines on Wall Street later in the day.

Fears about China’s economic growth also hit commodities in Asia trade.

US crude dipped 2.45 per cent to US$74.41 a barrel and Brent crude fell 2.24 to US$81.76 per barrel as the Covid-19 protests in top importer China fuelled demand worries.

Both benchmarks slid to 10-month lows last week and declined for a third consecutive week.

Protests spread over the weekend as citizens in major cities, including Beijing and Shanghai, took to the streets to express their anger over the nation’s Covid-19 controls. The rare show of defiance is raising the threat of a government crackdown, prompting investors to rethink investment plans after jumping back in on reopening hopes. 

Goldman Sachs economists said they see some chance of a “disorderly” exit from Covid-19-zero in China, as the central government may soon need to choose between more lockdowns and more Covid-19 outbreaks. 

The latest developments underscore China’s rocky path to reopening as the nation grapples with a record number of virus cases. Assets rallied in November as directives for a less-restrictive pandemic approach, coupled with strong support for the property sector, gave investors confidence that the worst is well behind.

A growing number of Wall Street players had turned upbeat on China following Beijing’s policy steps to shore up the economy. Monday’s setback comes even as the People’s Bank of China stepped up support for the economy, lowering the reserve requirement ratio for the second time this year late on Friday.

The Covid-19 rules and resulting protests are creating fears that the economic hit for China will be greater than expected.

“A growing list of cities, including those with large populations, have imposed strong restrictions on movement because of a surge in infections. There will inevitably be a negative impact on economic activity from the restrictions on movement,” CBA analysts said on Monday.

“Even if China is on a path to eventually move away from its zero-Covid-19 approach, the low level of vaccination among the elderly means the exit is likely to be slow and possibly disorderly. The economic impacts are unlikely to be small.”

China’s case numbers have hit record highs, with nearly 40,000 new infections on Saturday.

“Mobility data in China is showing the impact of a resurgence in Covid-19 cases,” ANZ analysts wrote in a research note on Monday. “This remains a headwind for oil demand that, combined with weakness in the US dollar, is creating a negative backdrop for oil prices.”

The US dollar rose 0.22 per cent against the yen to 139.4. It remains well off its high this year of 151.94 on Oct 21.

In the United States, a speech by Federal Reserve chair Jerome Powell in Washington on Wednesday to the Brookings Institute on the economic outlook and the labour market will be closely watched by investors.

Gold was slightly lower. Spot gold was traded at US$1750.49 an ounce. REUTERS