China: stocks becoming uninvestable amid lockdowns and protests
China is struggling with its worst coronavirus outbreak since the pandemic began. The lockdowns that Beijing imposed to reduce contagion have sparked mass protests. Market moves on Monday pointed to growing financial risks from political volatility.
Protests broke out this weekend in cities including Beijing, Shanghai and Wuhan. A deadly residential fire in Xinjiang fuelled the anger of demonstrators against government policies. Party officials have been reluctant to import bulk foreign vaccines better than the locally developed Sinovac jab. They have resorted to tough lockdowns instead.
Public disorder first hit the commodities markets. Prices for copper, iron ore, crude oil and coal added to sharp losses last week. This pointed to weakening demand from China, the world’s largest importer.
Local stocks fell sharply in early trading before clawing back some of their declines. The few stocks that did rise added to a bleak picture. Jiangsu Yuyue Medical Equipment, one of the biggest makers of oxygen inhaler and ventilators, rose more than 5 per cent on Monday, adding to gains of over 50 per cent in the last 6 months. That reflected steep infection rates and expectations that numerous new hospital beds and intensive care machines would be needed.
The rally did not transfer over to local vaccine makers and pharmaceuticals companies. Shares of the largest local pharma groups Sinopharm, Jiangsu Hengrui Pharmaceuticals and Shanghai Pharmaceuticals fell on Monday.
The stocks of vaccine makers China National Medicines Corp, CanSino Biologics and Walvax Biotechnology remained flat. The latter is developing a vaccine deploying mRNA technology, key to the success of western jabs. The shares of PCR testing companies Shanghai Labway Clinical Lab and Dian Diagnostics were weak.
The enforcement and cost of the drastic zero-Covid policy have fallen on local governments. Their resources are severely stretched.
Demand for testing, vaccines and drugs are soaring. But timely payments cannot be guaranteed. Accounts receivable at the biggest local PCR testing companies nearly doubled in September to $5.4bn. There is a danger officials will expect healthcare companies to absorb losses, as they have done with local banks amid the property market crisis.
When unpredictable politics calls the shots in stock markets, performance disconnects from fundamentals. Investors should then withhold fresh funds and consider selling. Chinese tech companies have been in that bucket for some time. The question now is whether the Chinese market as a whole is becoming uninvestable.
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