Reports that China is adopting a less stringent set of national Covid policies could stimulate the economy and provide a strong boost to Chinese stocks, Kristina Hooper, Global Market Strategist at Invesco said.
Over the weekend it was reported by FTAdviser's sister title the Financial Times that cities, Shenzhen and Shanghai had scrapped the requirement for commuters to present PCR test results to travel on public transport, following similar moves by Tianjin, Chengdu and Chongqing.
And now people who are asymptomatic or who have mild symptoms can quarantine at home - this all coming in the wake of mass protests around the country.
Hooper added: “China is making meaningful and positive alterations to its Covid policies. Last week China announced a new initiative to encourage further vaccinations for the elderly, and it has also recently relaxed its Covid testing requirements in some major cities.
“This news has been very well received by investors, who have driven up Chinese stocks.”
In agreement with Hooper, Seema Shah, chief global strategist at Principal Asset Management, said the gradual removal of restrictions would open the door for more effective fiscal stimulus, further restoring market confidence.
But Shah warned there were still challenges to overcome:
New vaccines need to be developed and vaccination rates must increase significantly.
Case counts are already elevated, and looser Covid restrictions could lead to another surge in infections.
Implementation risks remain as local governments often enforce stricter restrictions than national guidelines recommend.
Shah points to the events in the first week of November, when speculation that China’s strict Covid policies would be relaxed, triggered a “spectacular” 13 per cent rally in MSCI China.
Furthermore, the official announcement of “20 optimizing measures on COVID policy” that followed, which addressed the pain points of China’s Covid policy and promoted moves that would likely lead to full reopening, immediately lifted China equities into the bull market territory.
Shah said: “The strict “COVID zero” policy was among the key factors impeding China’s growth recovery this year.
“While these measures don’t suggest immediate reopening, they may mark the beginning of the end for cumbersome lockdowns.”