The Beijing regime appears to be moving away from its harshest COVID-19 restrictions, which have arguably stifled growth in the world’s second largest economy. Result: Battered Chinese stocks are staging a rally.
Since the announcement of the regulation easing last Thursday at a Politburo meeting, the iShares MSCI China exchange-traded has risen 6%. Since last October, when the Chinese government further tightened its rules and imposed harsher lockdowns, the stock gauge is down by more than a third.
The Politburo last week moved to reduce the number of quarantine days for close contacts and inbound travelers, allow home quarantine, stop tracking secondary close contacts and limit testing requirements, among other things.
Ajay Kapur, Head of Asia Pacific Strategy Research at Bank of America Corporation, applauded “nascent signs of reversal” of the regime’s tough pandemic rules. After two years of hesitancy about Chinese stocks, Kapur wrote in a research note that the bank had turned “tactically constructive on China.”
Meanwhile, Winnie Wu, a China equity strategist at Bank of America, commented in another note that the changes “should boost market confidence on China’s reopening and recovery.”
She indicated the Politburo action likely will lead many investors to rethink their heretofore underweight approach to the Chinese market. “Large, liquid and index-heavy stocks and high beta stocks are likely to lead the performance,” Wu added.
Pantheon Macroeconomics’ chief China economist, Duncan Wrigley, depicted the rule relaxations as marking “China’s first step along the exit path and confirm the view of leadership pragmatism.”
In a research piece, he also pointed out that the government, in talks with Germany’s officials, might possibly approve Bio-NTech SE’s mRNA vaccine for use in China. Chinese vaccines have been criticized as weak and even ineffective, while the German drugmaker’s product has a much higher rating from international health experts.
In addition, Beijing is increasing government aid to buoy the economy, in particular the battered real estate sector.
Chinese stocks are also on the upswing due to the relatively cordial meeting between Chinese President Xi Jinping and U.S. President Joe Biden, after a long period of U.S.-China tensions, on Monday at the G20 Summit in Bali, Indonesia.