Stocks, oil skid as China's COVID protests roil sentiment

Stocks and oil slid sharply on Monday as rare protests in major Chinese cities against the country's strict zero-COVID curbs raised worries about management of the virus in the world's second-largest economy.

MSCI's broadest index of Asia-Pacific shares outside Japan slumped 2.2 percent, pulled lower by heavy selling in Chinese markets.

Hong Kong's Hang Seng Index shed 4.16 percent, China's CSI300 Index declined 2.22 percent and the yuan fell in morning trade.

The bigger worries about China's COVID policies dwarfed any support to investor sentiment from the central bank’s 25 basis point cut to the reserve requirement ratio (RRR) announced on Friday, which frees up about $70 billion in liquidity to prop up a faltering economy.

In Shanghai, demonstrators and police clashed on Sunday night as protests over the country's stringent COVID restrictions flared for a third day.

"The market does not like uncertainties that are difficult to price and the China protests clearly fall into this category. It means investors will become more risk-averse," Gary Ng, Natixis economist in Hong Kong told Reuters. "The China-linked markets across Asia, such as Australia, Hong Kong, Taiwan and Korea, are more likely to see a larger impact." Australia's benchmark stock index lost 0.56 percent while its currency was off more than 1 percent. Japan's Nikkei stock index was down 0.76 percent.

S&P 500 and Nasdaq futures both fell, pointing to possible declines in Wall Street later in the day. 

There were also protests in Wuhan, Chengdu and parts of the capital Beijing as COVID restrictions were put in place in an attempt to quell fresh outbreaks.

"There is a tail risk that the road to living with COVID is too slow, surging COVID cases fuels more protests and social unrest further weakens the economy are market concerns," said Robert Subbaraman, Nomura's Asia ex-Japan, chief economist.

The dollar extended gains against the yuan, rising 0.87 percent. The COVID rules and resulting protests are creating fears the economic hit for China will be greater than expected.

"Even if China is on a path to eventually move away from its zero-COVID approach, the low level of vaccination among the elderly means the exit is likely to be slow and possibly disorderly," CBA analysts said on Monday. "The economic impacts are unlikely to be small."

China's case numbers have hit record highs, with nearly 40,000 new infections on Saturday. Gold was slightly lower. Spot gold was traded at $1750.49 per ounce.