Rumours of an end to China’s zero-Covid policy could send stocks on a roller-coaster ride, analysts say

A rally spurred by speculation about China reassessing its zero-Covid approach signals that investors have to be prepared for wild swings ahead, analysts said.

The 10-day realised volatility of the CSI 300 Index jumped to its highest level since May on Wednesday, according to Bloomberg data. The swing coincided with a surge in stock prices fuelled by social-media posts that top policymakers would set up a reopening committee and aim to phase out zero-Covid by March.

The episode snapped weeks of calm in China’s US$9.3 trillion onshore market, reigniting trading interest and turning around cautious sentiment after President Xi Jinping’s tightened grip on power sent investors to the sidelines. Trade was brisk on Wednesday even after a foreign ministry spokesman said he was unaware of any such plan.

The CSI 300 rose 1.2 per cent, extending a 3.6 per cent gain on Tuesday that was the steepest in seven months, as new social-media posts about Covid loosening emerged. The rumours included shortening of mandatory quarantine periods to five days from seven, reclassification of risk areas where Covid cases are found and the suspension of the circuit breaker system for international flights.

“There is strong speculation about reopening and the pandemic has turned into one of the core factors that holds sway over the economy,” said Zheng Xiaoxia, an analyst at Hua An Securities. “But such a big event that will boost risk appetite significantly needs to be officially confirmed.”

Bets on policy loosening have already proved to be risky in China. The easing of the regulatory crackdown on big technology companies has proved unfounded every time over the past year. Tencent Holdings and Alibaba Group Holding have lost at least 60 per cent of their value after successive rounds of short-lived rebounds.