China Markets Keep Showing Any Reopening Bets Are Fool’s Errand

  • Covid Zero reiteration adds stress on stocks, junk dollar debt
  • Party’s newspaper says current policy is ‘sustainable’

Investors in China’s assets are catching all kinds of signs from the Communist Party that the nation’s Covid Zero policy is here to stay for now, from commentary in official newspapers to social-media posts by prominent voices.

The latest signal came in a commentary published Tuesday in the Chinese Communist Party’s flagship newspaper, which endorsed Covid Zero efforts for the second day in a row.

Markets globally were already swooning due to inflation angst, and there was nothing particularly new in the People’s Daily piece. But it still underscores the difficulty of any bullish bets on nearer-term prospects for a dialing back of strict Covid measures, at a time when assets are already under pressure for other reasons.

“The damage from Covid Zero is often thought of as short term, as if reopening the economy will be like turning a light switch back on. This is an error,” according to Bloomberg Economics’ Eric Zhu and Chang Shu.

Chinese junk dollar bonds dropped as much as 2 cents Tuesday, traders said, following three straight weeks of declines. That’s the longest streak since July. Developers CIFI Holdings Group Co. and China SCE Group Holdings Ltd. led the day’s weakness, with some bonds falling more than 5 cents. Average prices for Chinese high-yield dollar bonds have declined to about 57 cents, near August’s record low, a Bloomberg index shows.

Macau casino shares slid as much as 5.5% Tuesday, according to a Bloomberg Intelligence gauge, adding to Monday’s slide. Tourism revenue slumped across China during the recent week-long National Day holiday. In late September, investors were cheered after Macau announced that tour groups from mainland China would resume as soon as November, sending some notes to their biggest rally in more than two years.

Domestic Covid curbs have added to a slew of recent negative news, including US restrictions on technology exports to China and an intensified Russia-Ukraine war, said ANZ Bank China Co. senior Asia credit strategist Ting Meng.

Authors: Dorothy Ma, Jeanny Yu, Bloomberg

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