Equities, oil prices slide on China unrest

LONDON — Stocks and oil prices fell Monday on concerns about protests across China calling for political freedoms and an end to the government's hardline zero-COVID policy, fuelling uncertainty in the world's number-two economy.

Hundreds of people took to the streets in China at the weekend in the country's biggest demonstrations since pro-democracy rallies in 1989 were crushed.

"Unrest in major cities in China has de-stabilised risk-on markets including oil which is under pressure, pushing BP and Shell towards the bottom of the UK index," noted Victoria Scholar, head of investment at Interactive Investor.

China-linked stocks took the brunt of selling in Asia, with Hong Kong's Hang Seng Index closing down more than 1 per cent and Shanghai off 0.8 per cent. The yuan slipped by around 1 per cent.

The unrest also left Wall Street and European markets in a sea of red.

"Sentiment has turned sour as unrest across China grows," said SPI Asset Management's Stephen Innes. 

"Risk of the situation escalating from here and short-term volatility remains high."

A deadly fire in the Xinjiang region Thursday served as the catalyst for the public anger in China, with many blaming virus lockdowns for hampering rescue efforts.

People have taken to the streets in Beijing, Shanghai, Guangzhou and Chengdu calling for an end to lockdowns, after an easing of some measures had fuelled hopes of a lighter pandemic approach.

Some demonstrators were even demanding the resignation of China's President Xi Jinping, who was recently reappointed to a precedent-breaking third term as the country's leader.

The latest targeted containment measures have been introduced as the country sees record-high COVID infections.

China's "zero COVID policy means the threat of more growth-choking lockdowns are there. This is going to hold back the yuan and Chinese stocks, and potentially risk assets outside of China - not least crude oil, as we have seen", City Index analyst Fawad Razaqzada said in a note.

The prospect of a hit to demand in the world's biggest crude importer hammered oil prices, with both main contracts down more than 2 per cent.

Eyes on Fed boss 

The weakness "isn't just about China. The reports out of China have also become a good excuse to take some money off the table following a big run by the market", Briefing.com analyst Patrick J O'Hare said in a note.

The selling has taken a bit out of recent gains across markets sparked by hopes of a slowdown in the Federal Reserve's (Fed) interest rate hikes, with inflation finally showing signs of softening.

However, some observers said the protests could provide long-term benefits as they could force President Xi to shift away from his strict, economically damaging measures sooner.

Investors were also looking ahead to the release of US jobs data at the end of the week, which could provide clues about the Fed's next moves, while speeches by central bank boss Jerome Powell and other key policymakers will also be pored over.