Chinese stocks’ post-Shanghai lockdown rally fizzles out as zero-Covid policy and beleaguered property market bite

The CSI 300 Index of the biggest stocks on China’s onshore market has lost almost half of the gains that followed the reopening of Shanghai

Covid-19 flare-ups and a property market that is in downturn after two decades of growth translate to dim prospects for onshore stocks, analysts say

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A pedestrian walks past a giant display showing a stock graph in Shanghai on August 3, 2022. Photo: Reuters

Published: 7:30am, 15 Aug 2022

Traders betting on a post-pandemic rally in Chinese stocks are now facing a reality check, as a run-up spurred by the lifting of Shanghai’s two-month lockdown appears to be sputtering.

The CSI 300 Index of the 300 biggest stocks on the onshore market has dropped 6.8 per cent from a high on July 4, wiping out almost half of the gains that followed the June 1 reopening of China’s commercial and financial hub.

“China’s post-pandemic economic recovery still leads the world, but this advantage could diminish if the country persists with the zero-Covid strategy,” said Preston Caldwell, chairman of the China economics committee at Morningstar in Chicago. “As long as China persists with [the] policy, growth will likely remain weak.”

Recent infection flare-ups have prevented traders from forgetting the lockdown that dragged the economy in the second quarter to its lowest growth rate since the initial Covid-19 outbreak in 2020. For example, investors sold China Tourism Group Duty Free and other consumer stocks last week after authorities in the southern resort city of Sanya imposed a lockdown, leaving about 80,000 visitors stranded.

A man walks past a display showing the Shanghai stock index in Shanghai on August 3, 2022. The CSI 300 Index has lost about half of the gains it made between the end of Shanghai’s lockdown on June 1 and a high on July 4. Photo: Reuters

More worrisome to traders, top leaders now seem to be downplaying the country’s annual GDP growth target, calling into question further stimulus action such as reductions in interest rates or the reserve requirement. A recent Politburo meeting chaired by President Xi Jinping made no reference to the annual growth goal of about 5.5 per cent.

Meanwhile, traders are frustrated by Beijing’s lack of meaningful measures to reverse a slump in home sales after promising to tackle a mortgage boycott movement by ensuring the delivery of unfinished flats. As a result, they remain jittery about the housing market.