China stocks slide as Covid curbs dash reopening dream

Chinese stocks dropped as the nation increased Covid restrictions to curb an outbreak in a key manufacturing hub, dampening hopes of a reopening that have triggered a rally this month. 

The Hang Seng China Enterprises Index slid as much as 2.7 percent early Thursday after falling almost 2 percent in the previous two sessions. A gauge of Chinese tech stocks in Hong Kong lost more than 3 percent, with heavyweights Tencent Holdings Ltd. and Alibaba Group Holding Ltd. sliding ahead of their earnings next week. 

The market surge that began last week with wild rumors over China’s potential Covid Zero exit is fading as health officials stick to the stringent policy amid rising virus cases. Volatility has been running high as shares tied to reopening, tech and property have seen outsized upswings in recent days.  

Thursday’s selloff is also part of a global risk-off swoon, as cryptocurrencies slump and caution runs high before a crucial US inflation report. The Nasdaq Golden Dragon Index of Chinese stocks listed in the US plunged almost 7 percent overnight. 

“It is normal to see some consolidation after the strong rebound last week,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “The market can continue to be choppy as investors respond to signals that emerge on China’s policy and economic direction.”  

The southern manufacturing powerhouse of Guangzhou has China’s most significant virus outbreak right now. That raises the risk of more stringent action from authorities in the factory hub, home to many garment manufacturers as well as automakers like EV company XPeng Inc. It’s also just over the border from Hong Kong. 

XPeng’s shares plunged more than 10 percent in a third day of losses on Thursday. 

Reopening is seen as the most important factor for investors to turn more positive on China, said Winnie Wu, China equity strategist at BofA Securities, citing the outcome of a survey last week. “Only a fourth of investors expect to see reopening before the second quarter of 2023.” 

Most markets in Asia fell Thursday ahead of the US inflation report, which will offer clues on the pace of the Federal Reserve’s tightening. The rout in cryptocurrencies deepened, with Bitcoin tumbling to the lowest levels in two years, denting sentiment across other assets. 

“I believe weak sentiment from the US and crypto is spilling over into Asia today with broad regional declines,” said Marvin Chen, a Bloomberg Intelligence strategist. “We expect volatility to continue until we get a catalyst on policy direction, which may be coming as attention turns to 2023.” 

(Bloomberg)