China’s stock market will pay the price for the COVID protests, says investor Mark Mobius

Rare public protests against COVID lockdowns swelled across China last week after an apartment fire in the Xinjiang provincial capital, Urumqi, killed 10 people and workers at the world’s largest iPhone factory in Zhengzhou clashed with authorities bad working conditions.

But even as protests against China’s COVID policies rage across the country, Mobius warns government officials are unlikely to change stance anytime soon.

“I realize that Xi cannot tolerate protests, so there will be a very tough crackdown on all protesters. More people will be arrested and they will likely go further in many areas of population control,” the emerging markets specialist and founder of Mobius Capital Partners told Bloomberg.

That’s bad news for Chinese stocks, which have already been under pressure this year, with the Hang Seng Index and Shanghai Composite Index down 25% and 15% year-to-date, respectively.

“If you have such a scenario, you have to consider that the market is not going to do as well in the short term,” Mobius said, arguing that Chinese indices could fall another 10%.

Still, Mobius went on to argue that “people’s memories are very short” and that there will eventually be a rebound in Chinese stocks that look “very cheap” as investors seek value.

“You will see a recovery,” he said. “But for now, I think there is no hope of a change in central government stance.”

Mobius isn’t the only investor sounding the alarm amid China’s recent COVID protests.

UBS Wealth Management chief investment officer Mark Haefele said in a note Monday that the protests and rising COVID cases in China are a “setback” for the country.

“With zero-COVID policy easing some time away, we continue to see short-term headwinds for the Chinese recovery,” he wrote.

And Citi strategists echoed Haefele’s comments in their own note at the start of the week, saying the recent protests amounted to a “blow in sentiment” for investors in China.

“The road to reopening will likely be noisy as local infections risk remaining high through the winter months and until vaccination rates increase more meaningfully,” they wrote.

In addition to the recent protests and COVID lockdowns, Mobius also warned that any investor in China must accept that there is a growing risk of war.

“The problem I have is … what happens if China decides to attack Taiwan?” he said. “Because if you have such a scenario, it will be like Russia – all investments in China will be lost.”

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