China Stocks Retreat as Covid Outbreak Renews Growth Fears

(Bloomberg) — Chinese stocks declined as traders fret the nation’s outbreak may derail a much-awaited economic recovery at home and abroad.

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The Hang Seng China Enterprises Index fell 1.1% Thursday, retreating from a near 2% jump in the previous session spurred by China’s decision to reopen its borders. Market moves were amplified amid thin year-end trading volume.

The setback reflects concerns over how the spiraling outbreak in China may spur new virus variants and cause stoppages to the global supply chain that’s still under pressure. The burst of economic activity expected following China’s Covid Zero exit is also yet to be seen, as widespread infections keep people at home.

“Investors may have priced that the worst is over, but they are starting to give more attention to the spread of the virus,” said Jun Rong Yeap, market strategist at IG Asia Pte. “The virus situation could set back the pace of economic recovery into 2023 by limiting consumer spending and disrupting economic activities.”

READ: China’s Nursing Homes Bear Deadly Brunt of Abrupt Covid Pivot

The Hang Seng Tech Index fell 2.5% with Chinese travel platform Trip.com Group Ltd. among the worst performers. The CSI 300 Index of mainland Chinese shares slipped for the second day.

A slew of countries are imposing Covid restrictions on visitors from China, tempering bets on a boost to global travel as the nation reopens. The US announced they will require negative Covid tests for travelers from China, while Italy said they will begin testing all arrivals from the nation.

READ: Here Are the Places Imposing New Covid Rules for China Travelers

An epic rally in November as Beijing surprisingly ended its Covid Zero policy has cooled this month with traders bracing for a messy reopening. The evolving situation in China spurred risk-off sentiment across the region on Thursday, with the MSCI Asia Pacific Index down as much as 1.1%.

(Updates prices as of market close.)