As markets opened in Asia on Monday, investors are prepared for a dip due to the growing unrest in China over Covid restrictions.
Protests spread across the country Sunday as citizens took to the streets and university campuses, venting their anger and frustrations on local officials and the Communist Party. There was a heavy police presence in some areas where large crowds gathered in Shanghai, and demonstrations were also reported in the capital, Beijing.
The yuan fell, the Australian dollar led commodity currencies lower and the dollar strengthened against most major peers as the unrest cast a shadow on risk sentiment. South Korea, Japan and Australia opened lower stock markets.
Here is what analysts had to say about the market implications for Asia:
Chris Weston, head of research at Pepperstone Group Ltd, said that we are seeing some outflows of the offshore yuan, which is a good indication of how Chinese markets may fare, and that the outlook for China over the long term remains relatively robust.
Jessica Amir, a market strategist at the Saxo Capital Markets in Sydney, said that anything exposed to China is probably going to be vulnerable. Either way, the Chinese exposed companies' forward earnings will be in question and investors will probably express that by selling. Karen Jorritsma, head of Australian equities at RBC Capital Markets said that it raises concerns and drives a sell-off across the region. The larger issue is longer term, what does this mean for the supply chain and the corporates. Gabriel Wildau, managing director of Teneo Holdings LLC in New York, said markets will react negatively to the widespread protests and rising case numbers, which are likely to cause new supply-chain disruptions and dampen consumption demand in the short term. The protesters' disappointment is probably shared by investors. Both groups expected that the 20 measures signaled a more decisive policy shift away from zero-Covid and are now dismayed to see local officials returning to hard lockdowns. The deteriorating Covid situation in China should weaken AUD and CNH, Commonwealth Bank of Australia Ltd. strategists including Joseph Capurso wrote in a note. He said that the restrictions on movement will have a negative impact on economic activity.
Jason Hsu, chief investment officer at Rayliant Global Advisors, said that the Chinese onshore equity market might interpret the public protest as a catalyst for change and therefore view it favorably. He said that anything that holds out hope for a better policy is good news when the market already has priced in draconian Covid policy.
With help from Ruth Carson and Jacob Gu.
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