Chinese tech stocks tumbled anew Monday amid a broader rout in Mainland and Hong Kong shares, suggesting the impact of an official pledge to support markets may be waning.
Lockdowns in Shanghai aren’t just weighing on investor psychology — they’re also starting to manifest in frustration among city residents, and have prompted food stockpiling elsewhere in the country. “Stockpiling has become a hot topic on Chinese social media as news spreads of the plight of Shanghai residents who are struggling to secure food supplies under lockdown,” SCMP wrote, noting that over the weekend, “What items should I prepare in case I suddenly get a quarantine notice?” was a trending topic on Weibo, garnering nearly 50 million views.
Most of Shanghai’s 25 million residents have been under strict quarantine for at least a week, although authorities lifted protocols for some 40% of the city’s housing complexes Monday after developing a three-tier classification system. Lockdowns were lifted for residential compounds where no cases have been reported for two weeks. That covers more than 7,500 complexes. But, as Bloomberg noted, “authorities will reimpose lockdown measures if they report even a single new case.”
It’s an exercise in futility. China’s “COVID-zero” strategy has failed. 26,087 isn’t zero. And that’s how many new cases the city logged on Sunday. “The market voices who extolled China’s COVID restrictions are eerily quiet now as tens of millions are locked down and reportedly struggling to get hold of enough to eat, prompting the US to withdraw its diplomatic personnel from Shanghai,” Rabobank’s Michael Every wrote Monday, when the Mainland benchmark tumbled 3% despite official efforts to put a floor under equities (figure below).
Former Global Times editor Hu Xijin bristled at criticism. “Shanghai is at the peak of the epidemic. It’s one thing for the US to withdraw its diplomatic personnel, but it’s another to make rude accusations [about] China’s epidemic control measures,” the notorious Party mouthpiece said, on US social media.
“It’s undiplomatic and unethical,” Hu added. “No wonder some Chinese netizens asked them to ‘Go back to the US!'”
As Every dryly noted of Hu’s exhortations that the world refrain from criticizing Xi’s COVID protocols, “I don’t recall the reverse being true when it was the US floundering with the virus.”
The Hang Seng Tech gauge, the poster child for Xi’s regulatory crackdown, dropped more than 5% Monday (figure below). It was the worst session since officials vowed to support markets and wrap up various efforts to “reform” platform companies.
The broader city gauge dropped 3%.
Foreigners sold $910 million of local shares, apparently overwhelming the impact of plunge protection efforts in Beijing. According to the ubiquitous people familiar with the matter, Party officials instructed mutual funds to avoid net selling in Mainland equities, effectively limiting the amount of risk large market players were allowed to cut.
As Bloomberg wrote, in an unattributed article, “the verbal request has become a regular operation to prevent panic selling.”
2022 is, yet another, Einstein-Rosen bridge.