The FTSE 100 started the week firmly on the back foot, dragged lower by resources stocks as widespread protests against China’s zero-Covid policy raised concerns about stability in the world’s second largest economy.
AJ Bell investment director Russ Mould said: “China is a rapacious consumer of global commodities and signs economic activity is being disrupted by the mounting dissent in the country will be seen as negative for demand. It’s worth noting that unrest is already affecting business in China including Apple which has seen violent clashes at one of its facilities in Zhengzhou.
“In this context the selling in mining, oil and gas stocks makes a lot of sense and it’s notable that other European indices aren’t as impacted as much as the resource-heavy FTSE 100 this morning.
“In the medium term the protests could be positive for growth if they persuade Beijing to adopt a looser approach to Covid but given how strident Xi Jinping has been in pursuing the hard-line policy, it’s difficult to see it being surrendered easily.
“Part of the problem for China is vaccination levels are behind those seen in other parts of the world and this means a ‘living with the virus’ strategy comes with substantial risks attached.”
“Mining firm Rio Tinto has put a difficult episode from its recent past behind it by reaching an agreement with traditional landowners in Western Australia over its destruction of sacred rock shelters at the Juukan Gorge two years ago.
“This was one of a litany of ESG failings under the company’s previous management. Current CEO Jakob Stausholm may as well wear marigolds to every meeting as cleaning up messes seems to have been a key part of his role so far, and this latest move fits with the new approach.”
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