China's leaders will crack down harshly on zero-COVID protesters – so its markets will stutter, veteran investor Mark Mobius says
- Chinese markets will fall in the short term in the wake of unrest, legendary investor Mark Mobius said.
- Public protests against zero-COVID curbs have erupted in Beijing, Shanghai and other major cities.
President Xi Jinping and other Chinese leaders will have no choice but to crack down harshly on protesters if they want to survive – and that will weigh on the country's markets in the short term, according to Mark Mobius.
The legendary investor said Monday they will inevitably implement tough measures to crush public demonstrations against the government's zero-COVID policies that have spread to Beijing and Shanghai in recent days.
"It's clear to me that Xi cannot tolerate any protests, so there will be a very tough crackdown on any protesters," Mobius told Bloomberg TV. "More people will be arrested and they will probably go further in terms of population control in many areas."
"So if you have that kind of scenario, then you've got to consider that the market will probably not do that well in the short term," he added.
Demonstrations against China's strict lockdowns broke out Saturday after social media posts blamed ongoing restrictions for preventing firefighters from tackling a blaze that killed 10 people.
Police have responded by detaining protesters — and Mobius said he expects that sort of response to continue in a bid to quell unrest.
"I think the government will, in order to survive, crack down harshly on any protesters," Mobius said. "They have to jail thousands of people and they have to increase surveillance in order to survive."
Chinese stocks are already suffering in a nightmare 2022 that's seen the flagship Hong Kong Hang Seng index fall over 26% as investors fret about Xi tightening his grip on power.
That selloff means there's not much further for equities to fall in the short-run, according to Mobius.
"You can't go much lower than we already are — I mean maybe another 5, 10%," he told Bloomberg. "But we're already down at the bottom and some of these stocks look very, very cheap."
Asian stocks suffered Monday as the protests continued, with Hong Kong's Hang Seng index down 1.57% and the Shanghai Composite closing the session 0.75% lower.
But that doesn't mean investors should be weighing up buying Chinese assets in the long term, Mobius said.
He warned of the ever-looming threat of China invading Taiwan, which could trigger sanctions that would make any Chinese stocks worthless to western investors.
"The problem that I have is from a longer term perspective — I'm talking about four or five years — what happens if China decides to attack Taiwan?" he said.
"Because if you have that kind of scenario, then it's going to be like Russia – all of the investments in China will be lost."