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Zero-Covid: reopening playbook turns Chinese stocks into one-way bet for investment banks, value trap for others
- China unveiled 10 new measures on December 7 to further ease Covid-19 rules, underpinning hopes for an imminent end to its zero-Covid policy
- Morgan Stanley, Bank of America and Goldman Sachs have turned increasingly bullish on Chinese equities in recent weeks
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As calls for an end to the zero-Covid policy grow louder, China has stepped up this week and last by delivering the good news, slowly dismantling some of the draconian pandemic-control regime it has had in place since the Wuhan outbreak.
Stock strategists are now convinced the economic reopening is a matter of time, with one calling the policy past its point of no return. Foreign fund managers, with US$1 trillion of stake in local stocks per Goldman Sachs’s estimate, have bought more of them in early December on top of US$8.5 billion of net purchases in November.
China analysts at Wall Street shops including Morgan Stanley and Bank of America have upgraded their forecasts and ratings since Beijing issued a 20-point measure to soften its Covid-19 curbs. Another 10 measures on December 7 “further pave the way to an eventual exit,” Goldman said.
It will not be plain sailing, though. A deepening slump in manufacturing and external trade in November showed why further easing – in monetary and health policies – is turning Chinese stocks into a one-way bet. But could this be a value trap?
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China further eases pandemic restrictions in latest step towards reopening after zero-Covid
China further eases pandemic restrictions in latest step towards reopening after zero-Covid
“The economic recovery will be in focus now,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “There are concerns the recovery will be slow and bumpy rather than quick and swift, and whether the new Covid measures will spur consumption and production.”
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