(Bloomberg) -- Market watchers expect Chinese assets to remain choppy in the coming months as growing unrest in the mainland over Covid restrictions cast a shadow over the nation’s reopening path.  

The Chinese equity benchmark onshore fell as much as 2.8% while Hong Kong’s Hang Seng Index was down 4.2%, both marking the biggest intra-day loss in a month. The onshore yuan plunged 1% at the open, the most since May, before paring some declines.

China Markets Slide as Covid Protests Put Investors on Edge

Here’s what analysts had to say about the market implications: 

Risk Pricing

“We might see some derisking around Chinese markets,” said Chris Weston, head of research at Pepperstone Group Ltd. “We are seeing some outflows of the offshore yuan, which I think is a pretty good indication of how Chinese markets may fare,” he said, adding that the outlook for China over the longer term remains relatively robust.


“Anything exposed to China is probably going to be vulnerable here -- we still have not yet seen the government respond,” said Jessica Amir, a market strategist at Saxo Capital Markets in Sydney. “Either way, forward earnings of Chinese exposed companies will be in question and investors will probably express that by selling.”

“This raises concerns and drives a sell-off across the region, albeit we have seen this before so not going to be too material,” said Karen Jorritsma, head of Australian equities at RBC Capital Markets. “I think the bigger issue is longer term, what does this mean for supply chain and the corporates.”

Bumpy Road Ahead 

“I expect markets to remain choppy in the coming months as China repositions itself in managing Covid outbreaks,” said Steven Luk, chief executive officer at FountainCap Research & Investment in Hong Kong.

“Reality on the ground is chaotic as officials struggle to implement the 20 new guidelines on Zero ovid while keeping the number of cases from rising. The juggling act is likely going to continue well into the winter and the rise in number of cases may reach a point of no return, in which achieving zero cases will no longer be possible barring a full lockdown across all cities in China.”

Disappointed Investors

“Markets will respond negatively to the widespread protests and rising case numbers, which are likely to trigger new supply-chain disruptions and dampen consumption demand, at least in the short term,” said Gabriel Wildau, managing director at Teneo Holdings LLC in New York. “Investors probably also share some of the disappointment of the protesters themselves. Both groups expected — perhaps wrongly — that the ‘20 measures’ signaled a more decisive policy shift away from zero-Covid and are now dismayed to see local officials returning to hard lockdowns.”

Weaker Currency

“The deteriorating Covid situation in China should weaken AUD and CNH,” Commonwealth Bank of Australia Ltd. strategists including Joseph Capurso wrote in a note. The ongoing lockdowns “will inevitably be a negative impact on economic activity from the restrictions on movement,” he said. 

Watch Government Response  

“The protests create uncertainty but the destination of opening up has been set since the party congress,” said Robert Mumford, an investment manager at GAM Hong Kong Ltd. “It’s just the path and pace which is not clear.”

“One suspects this sort of public pressure might encourage a faster pace of opening which would be a positive but it remains to be seen how the authorities react to recent events.”

--With assistance from Jacob Gu, Ruth Carson and Tania Chen.

(Updates with prices and additional comments)

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