China, Hong Kong Stocks Sink as COVID Reopening Hopes Fade

By Ambar Warrick 

Investing.com-- Chinese and Hong Kong stock markets fell on Tuesday as traders dialed back expectations that Beijing will lift strict COVID restrictions in the near future, particularly after authorities denied such a move was planned.

China’s bluechip Shanghai Shenzhen CSI 300 index fell 0.6%, while the Shanghai Composite index lost 0.5%. Hong Kong’s Hang Seng index shed 0.2%, as losses in the index were tempered by gains in technology stocks. 

Chinese authorities said over the weekend that the country will “unswervingly” stick to its strict zero-COVID policy, dismissing recent rumors over a potential lifting of restrictions. 

Unfounded social media rumors that China planned to lift its zero-COVID policy sparked a massive rally in Chinese and Hong Kong stocks last week, helping them recover sharply from annual lows. 

The Wall Street Journal reported on Monday that while Chinese authorities were considering a potential lifting of the zero-COVID policy, there is no set timeline or measures outlined for such a move. Officials were reportedly concerned over the cost of maintaining their zero-tolerance approach to COVID. 

Considerations over the eventual scaling back of zero-COVID come as a series of lockdowns ground Chinese economic activity to a halt this year. Strict curbs on movement have also sown discontent among the populace, as millions of people were confined to their homes for days on end. 

Chinese stocks suffered heavily through the economic slowdown, with the CSI 300 index down nearly 24% so far this year. The index also recently hit a two-year low. 

Goldman Sachs analysts recently predicted a 20% jump in stocks when a reopening does happen. They also expect the country to begin scaling back the zero-COVID policy by the second half of 2023. 

But the Chinese economy is expected to slow sharply in the interim, despite a series of stimulus measures by the government. Uncertainty over a Chinese reopening has also severely soured investor appetite for the country.