Protests against COVID lockdowns in China intensified over the weekend, weighing on risk sentiment early Monday. There were a series of concerns that helped raise interest in safe havens like the dollar. But what could happen in China has led to some differential analysis about where the markets are headed.

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That’s because COVID cases continue to rise as popular discontent over lockdowns becomes increasingly public. Experiences in other countries show that large gatherings of people such as in a protest contribute to the spread of the virus, as well. With several major cities embarking on mass testing over the coming days, it’s likely even more cases will be reported.

Supply chain issues are back

On the one hand, rising case numbers might mean that further lockdowns are imposed. Already some industries are seeing problems getting supplies from China due to restrictions. While the focus is mainly on lockdowns in cities where the factories are, transportation is another major problem in China. COVID restrictions make it difficult to transport goods from city to city, even if there is no lockdown. It’s been reported that farmers in Shandong and Henan are simply destroying their crops because they can’t transport them to cities to sell, and have to make way for the next season’s planting.

A government crackdown on social unrest on top of increasing cases could make the logistics situation worse. This is one of the factors contributing to a drop in commodity prices across the board, from oil to iron ore. At least in the short term, there are worries that China will keep importing products if there are increasing difficulties in getting those products from ports to factories and consumers.

A potential bright spot?

The flip side is that the social pressure on the government has led many to speculate that it could lead to Chinese authorities accelerating the end of zero-COVID policies. At least privately, since publicly announcing an end to the program would likely be interpreted as a sign of weakness and admitting an error. Since there is no official timeline to end the zero-COVID policies, privately authorities could agree to lift restrictions.

Urumqi, for example, is where the protests started after the death of 10 people in a locked down building. Authorities announced a gradual lifting of restrictions after intense protests, saying the measure was to “restore order”. Authorities didn’t say there was an end to zero-COVID policy, of course. And there has been no sign in other cities that activities like mass testing wouldn’t be going forward.

Where the money is

Some traders, however, appear to be betting on a quicker end to zero-COVID policy in China. While the stock market in general fell on general economic risk, “reopening” stocks saw a surge. Shares in Cathay Pacific and Guangzhou Airport rose, but UTour (a major tour operator in China) was the best performing stock during the Asian session.

It remains to be seen how Chinese authorities will balance dealing with rising COVID case numbers and popular unrest over policy to combat COVID. China has yet to authorize the use of mRNA vaccines, which preceded the end of COVID restrictions in the rest of the world.

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