Rumors and intrigue are China’s biggest market movers

Unverified information on China's possible covid opening is driving a trillion-dollar rally
Not a lot of clarity.
Not a lot of clarity.
Photo: Aly Song (Reuters)
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What’s moving Chinese markets these days—to the tune of hundreds of billions of dollars—isn’t stellar GDP figures (when they aren’t delayed) or central bank interest rate moves, but something decidedly more nebulous: rumors and intrigue.

Last week, a mysterious four-paragraph screenshot of unknown origin and uncertain authenticity sparked a massive rally of some $450 billion in Chinese equities. The unverified post claimed that senior government officials held a meeting to “speed up a conditional opening plan” from the current zero covid policy.

Investors, by now desperate for signs of an easing of pandemic restrictions, gobbled up the rumor by the bucketload.

A pandemic rumor and a $1 trillion rally

Between Oct. 31, when the unverified screenshot first began circulating on Chinese social media, and Friday (Nov. 4), indices for the Shanghai and Shenzhen stock exchanges jumped 6.1% and 7.6%, respectively. Hong Kong’s Hang Seng Index, whose constituent companies are majority mainland Chinese, surged over 10% over the same period.

Even though Beijing swiftly squashed the rumors and reiterated that it will maintain its zero covid strategy, the rally has continued this week. The Shanghai, Shenzhen, and Hang Seng indices continued to rally today (Nov. 7).

More speculation around China’s covid policies

There may now be more meat to last week’s rumor, however: according to a recording heard by Reuters, a former Chinese disease control official told a Citi conference last Friday that “substantial changes” to China’s pandemic policies will happen in the next five to six months.

Beijing has yet to officially indicate any adjustments to its pandemic rules, however. And the state-run newspaper Securities Daily today published an op-ed (link in Chinese) decrying the spread of market-moving rumors and demanding legal action against those who disseminate false information.

Political intrique and a $6 trillion rout

The recent rally is all the more remarkable because it comes less than two weeks after a massive sell-off following the Chinese Communist Party’s five-yearly congress, in which president Xi Jinping secured a third term as CCP leader, and stacked the elite 24-member politburo with loyalists.

The unceremonious removal of former president Hu Jintao in the middle of a congress meeting likely further unnerved investors.The steep sell-off capped a $6 trillion loss in Chinese equities onshore and in Hong Kong since a peak in February 2021, according to Bloomberg.

Chinese tech stocks, whose fortunes have suffered since Xi ordered a crackdown on the sector, were some of the biggest losers in the market bloodbath: Giants like Alibaba, Tencent, Baidu, and Meituan all tanked by double-digits percentages when markets opened on the Monday following the party congress’s conclusion.