European indices are trading lower on Monday: Ibex 35, Cac 40, DAX, as protests in major Chinese cities against China’s strict restrictions under its zero-tolerance COVID-19 policy heighten investor concerns about the growth implications for the world’s second-largest economy.

Major Asian stock exchanges: the Nikkei, Shanghai Composite and Hang Seng are also down.

According to the Associated Press and Financial Times, the protests represent the biggest challenge to the Chinese Communist Party’s grip on power since the 1989 Tiananmen Square protests. Demonstrators are demanding the departure of Xi and the country’s Communist Party.

Pressure is also being felt in the commodities market, with WTI and Brent crude oil losing ground as China is the largest importer and protests in the country adding to demand fears.

“There is a lot of unrest in the country and politics is destroying the country’s middle class. The main problem is that investors don’t know how the unrest will affect the market as they don’t know what the Chinese authorities’ response will be,” Link Securities explained.

“The stock market is succumbing to the pressure this could put on demand and supply chains in the short term. We will see whether the protests will lead to a quicker lifting of restrictions or, on the contrary, create more problems,” commented Renta 4 (BME:RTA4).

In this context, the experts explained, the dollar has strengthened slightly (1.035 – USD/EUR) and Treasury yields continue to fall (-4 basis points to 3.64%, adding to -15 basis points last week).

“As the market is spooked, until the situation becomes clearer, we expect investors to adopt a cautious stance, leading to a reduction in positions in riskier assets and possibly a bet on assets of a more defensive nature,” Renta 4 concluded.