Trading in Chinese equities was choppy on the first day of the new year as investors assessed the impact of rising Covid cases on the world’s second-largest economy.
(Bloomberg) — Trading in Chinese equities was choppy on the first day of the new year as investors assessed the impact of rising Covid cases on the world’s second-largest economy.
The CSI 300 Index fell as much as 1% before rebounding to finish 0.2% higher at the mid-day break in Shanghai. A gauge of Chinese stocks listed in Hong Kong rose 1.2% after dropping as much as 2.5%.
Volatility is expected to remain high after a raft of reports highlighted the economic toll from the surge in virus cases. With stocks having rallied for two months on reopening bets, traders are looking for fresh catalysts, especially as analysts expect the economy to rebound only later in the year.
“Investors have concerns about China’s abrupt switch from the Zero Covid policy that may trigger short-term surging infections,” said Banny Lam, head of research at CEB International Investment Corp. “The pandemic could cause temporary labor shortages and enhance supply chain disruptions, thus disrupting the recovery path of China’s economy.”
Official data over the weekend showed the decline in manufacturing worsened last month, while activity in the services sector plunged the most since February 2020. The number of domestic trips during the New Year’s holiday only rose 0.44% from a year earlier, government figures showed.
Still, investors have turned more bullish for 2023 amid bets that China’s reopening from Covid curbs, while chaotic to begin with, will eventually boost the economy and corporate profits.
The HSCEI gauge surged 36% in the last two months, beating a broader index of Asian equities by more than 20 percentage points. The index is expected to rebound in 2023 after capping a third straight year of declines — a record losing streak since its inception in 1994.
READ: China Stock Investors Eye Better 2023 After $3.9 Trillion Rout
Meanwhile, the CSI 300 has been largely rangebound after surging almost 10% in November as investors booked profits amid fears about the spike in infections following the dismantling of China’s Covid Zero policy.
“The latest PMI readings suggest that China’s reopening is not going to be smooth and that economic activity may not pick up until the winter Covid wave subsides,” said Marvin Chen, an analyst at Bloomberg Intelligence. “There may be some short term pain until activity normalizes.”
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.