Advertisement
Macroscope | Why what comes after China abandons ‘zero-Covid’ policy is worryingly unclear
- Those with cursory knowledge of the predicament facing China have reason to be concerned
- The lack of a credible exit plan and the uncertain path of the virus make it hard to predict what China will look like after ‘zero Covid’
Reading Time:3 minutes
Why you can trust SCMP
5
When it comes to Beijing’s plan to relax pandemic-related restrictions after nearly three years of taking a zero-tolerance approach to Covid-19, the verdict from financial markets is increasingly clear. Even some of the most sceptical analysts believe the government has thrown in the towel.
Nomura, which in the last few months warned a reopening would be “painful and bumpy”, said in a report published on Monday that the government had “reluctantly given up its zero-Covid strategy because it simply does not work and is too costly”.
A growing number of Wall Street firms are turning bullish on Chinese stocks, which are trading at historically low valuations. In a report published last Sunday, Morgan Stanley lifted China to an overweight position in its portfolio, with “a clear path set toward reopening warrant[ing] an upgrade”.
Bloomberg Economics has even come up with a possible road map for a full reopening, with “the final pivot to ‘living with the virus’” likely to occur by the end of June 2023 when “the economy will be free of any material Covid curbs”.
To be sure, plenty of investors remain circumspect about China’s exit from its “zero-Covid” policy. Yet, sentiment towards the country has improved sharply in the past several weeks. The MSCI China Index, a gauge of onshore and offshore equities, is up 34 per cent since October 31.
From a market standpoint, there is a strong case to be more optimistic about China. Investors were waiting with bated breath for a clear indication that Beijing would start easing restrictions. There are now signs aplenty, including allowing home quarantine for asymptomatic and milder cases.
Advertisement