Chinese Equities Extended Loss After President Xi Defended Lockdown in China Hurting Sentiment

Chinese equities extended loss as traders weighs on economic fallout from the country’s Zero COVID policy and as Beijing failed short to add stimulus as widely expected.

The CSI 300 Index slumped as much as 1.8% on Thursday after President Xi Jinping defended lockdown in China.

The benchmark index erased almost its mid-March rally which was stroked by policy promises led by Vice Premier Liu He to stabilize markets.

In a sign that authorities are keen for the slide to end, the China Securities Regulatory Commission said that on Thursday it met with institutional investors such as the National Social Security Fund, banks and insurers to ask them to boost their equity investments.

“The market is flooded with pessimism,” said Wu Wei, fund manager at Beijing Win Integrity Investment Management Co as reported by Bloomberg.

“While there have been some policies since Liu He, the greater weight on people’s minds now is the virus. No one can accurately guess the bottom. Judging from the virus situation, we could still see a further slide.”

The onshore yuan weakened for the third day against the dollar hitting its lowest level since October. According to credit traders, the Chinese high-yield dollar bonds were down abbot 1% on the dollar.

“Matters have taken a turn for the worse with the latest round of the Covid-19 resurgence that has led to lockdowns of key economic hubs,” BofA Securities Inc. strategists led by Ritesh Samadhiya wrote in a note this week.

“A significant ramp up in policy easing is paramount in attaining the ‘about 5.5%’ growth target.”

Meanwhile foreign investors are pulling out money from mainland shares as lockdown poses threat to economy growth and the yuan’s weakened against the dollar falls to multi-month lows. Foreigners offloaded 45 billion yuan ($7 billion) of shares onshore through the stock connect in March, the most in two years. Net outflows amounted to 6 billion yuan so far this month through Wednesday, according to data compiled by Bloomberg.