China protests spook markets; investors prepare for sharp rebound

Although stock markets across the globe have been spooked over the recent protests in China against the government’s zero-Covid policy, investors must be prepared for an imminent sharp rebound.

Thousands took to the streets after 10 people lost their lives in a fire in a high-rise block in Urumqi, western China, last Thursday. Many are of the opinion that the strict Covid restrictions contributed to the fatalities.

As Asia trade opened on Monday, the Hang Seng declined by over 4%, and other Asian markets were broadly lower, whilst the onshore yuan weakened to a six-month low. In addition, European markets also fell as trade opened, as well as U.S. stock futures.

As I was quoted by The New York TimesMSN Money and Financial Mirror, amongst other media, the scenes we saw of the demonstrations in major cities are a challenge to president Xi Jinping’s rule that we’ve never seen before. However, on Monday, the planned protests didn’t go ahead in Beijing, and numerous arrests were made in Shanghai. Police continued to patrol certain areas in both cities on Tuesday morning, where it was rumoured protests would once again fire up.

China’s stringent lockdowns, rising Covid case numbers and these recent protests filtered into global financial markets as there’s immense uncertainty. That said, National Health Commission spokesman Mi Feng said China would continue to “fine-tune and modify” its measures. “We are going to maintain and control the negative impact on people’s livelihoods and lives.”

There’s no doubt that investors have been spooked by China’s latest Covid prevention measures, but when they’re eased, I believe we’ll witness a considerable bounce in domestic and international markets.

Savvy investors will be looking ahead and ensuring their portfolios are well-positioned for the post-lockdown reopening. They’ll be wanting to make the most of China’s shift from an export economy to a consumption one, which will be more sustainable.

Furthermore, the increasing number of acquisitions of foreign brands, market networks and technologies are a key pull factor for global investors, as well as the ongoing urbanization and the reform of state-owned firms, which could break up monopolies.

Although the initial phase of China’s reopening will undoubtedly be messy, once the restrictions are lifted, the rebound in the markets will likely be dramatic.

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