Blog: Start Thinking About China’s Reopening

By Jeff Pollock

Chatter that China is planning to reopen its economy following 3 years of a zero-COVID policy is welcome news to the market.

Beijing eased quarantine requirements for close contacts and international travellers last week, a step towards reopening. In response, China’s yuan currency rallied while the Hong Kong Seng Index jumped 7%.

The lockdowns, which have slowed China’s economic growth rate to a four-decade low, has also sparked rare sightings of social unrest and physical clashes between residents and health officials. Hundreds of thousands of people have also boycotted making any mortgage payments on unfinished properties.

However, with China’s current case count at a 6-month high and record infections in Beijing, as well as a low vaccination rate for the elderly, a mass reopening is unlikely to take place immediately. Doing so would create strain on its health care system as it enters the winter.

Many expect the reopening to take place in March 2023, once the cold weather has cleared.

Unlike economic data, which is backward-looking, the market anticipates future events before they occur. Stocks with exposure to China will begin to rally prior to March.

Goldman Sachs predicts Chinese stocks will rally by 20% when its economy reopens. Because China is its largest consumer, we expect the commodities to benefit most.

Our clients have exposure to that sector. We also purchased recently a cosmetics company that lowered its guidance last quarter because of China. The stock is 40% off its high and its management expects a strong second half in 2023 once China reopens.

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