China Stocks Slide as Covid Deaths, Restrictions Dent Optimism

(Bloomberg) — Chinese stocks slid and the yuan weakened as a string of reported Covid deaths and tighter restrictions in some districts sapped earlier optimism driven by reopening bets.

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The Hang Seng China Enterprises Index dropped as much as 3.7%, retreating for the fourth session and trimming this month’s advance to 20%. The onshore yuan weakened 0.5% against the dollar after gaining 1.4% last week.

The setback reflects a messy reality as China seeks to pivot away from its stringent Covid Zero restrictions. Despite broad guidelines stipulating loosened quarantine and mass testing rules, worsening outbreaks across the nation are rekindling fears that authorities may have to resort to harsh restrictions to minimize the death toll.

Read: China Reopening Stocks Decline After Covid Death in Beijing

“It feels like one step forward, two steps back,” said Willer Chen, analyst at Forsyth Barr Asia Ltd. “It is super hard to reopen in the short term given winter is coming and cases are at a super high level and spreading across the whole country.”

Shijiazhuang — a city of some 11 million and formerly rumored to be a test case for reopening — has forbidden residents in areas deemed high risk from leaving their homes. What’s more, Beijing reported three Covid deaths over the weekend, ending months of no official fatality related to the virus.

The developments are sapping the euphoria that had boosted China assets earlier this month, when optimism over China’s gradual reopening and a rescue package for the property sector drove investors back into the market.

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Bilibili Inc. was one of the biggest decliners on the Hang Seng China measure, dropping as much as 9.3% on news it will be removed from the gauge. The benchmark Hang Seng Index fell more than 3%, while the onshore benchmark CSI 300 slipped as much as 1.8%.

Meanwhile, China’s 10-year government bond yields dropped two basis points to 2.81% on Monday. China withdrew short-term cash from the financial system for the first time in nearly two weeks, as a selloff in government and corporate bonds eased.

–With assistance from Wenjin Lv.

(Updates throughout.)