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China unrest spooks markets, investors brace for rebound

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Stock markets are spooked as protests erupt across China against President Xi Jinping’s zero-Covid policy, but investors should position themselves now for a sharp rebound sooner rather than later, according to a leading financial advisor.

Thousands gathered to grieve the ten people killed in the blaze in Xinjiang’s capital Urumqi in recent days and to speak out against draconian zero-Covid measures.

The Hang Seng fell by more than 4% on Monday, other Asian markets were also broadly lower, and the onshore yuan weakened as much as 1%, the most since May. Meanwhile, European markets retreated on opening and U.S. stock futures fell, with Dow futures down 0.3%, the S&P 500 were down 0.5%, while futures for the Nasdaq dropped 0.6%.

“The public scenes of anger and defiance in major cities such as Shanghai and Beijing are an unprecedented challenge to Xi’s rule,” said Nigel Green, chief executive of deVere Group, a leading financial advisory and fintech.

“No one knows how the protests will develop, how long they might last, and critically how the government will respond to the situation.

“The controversial lockdowns, growing numbers of infections, and now the highly unusual social unrest in the world’s second-largest economy, often dubbed the ‘factory of the world’, is spilling over into global financial markets as there’s huge uncertainty.”

End of zero-Covid policy

The deVere CEO believes that even if Beijing enforces a harsh clampdown on the protests, this is likely to be the beginning of the end for zero-Covid.

“He won’t show weakness in any way, but Xi might now adjust the scheduling for the end of China’s lockdowns to avoid further embarrassing, messy public challenges,” Green said.

“We expected that lockdowns would come to an end in April 2023, but this might even be brought forward.”

Markets have been spooked by China’s latest anti-Covid moves, but when they are lifted, both domestic and international markets will experience a significant bounce.

“Many investors will be looking ahead and positioning their portfolios now for the reopening,” Green added.

“They will be seeking to take advantage of the country’s transition from an export economy to a consumption one, which will be more sustainable.

“Also, China’s growing number of acquisitions of foreign brands, market networks and technologies will be another pull for global investors, as will the continuing urbanisation and the reform of state-owned companies, which could shatter monopolies.”

The deVere CEO concluded that the first phase of the full reopening is going to be messy.

“But unshackled from the lockdowns, the markets’ rebound is likely to be dramatic.”