- Chinese cities eased COVID regulations this week, following mass protests. This lifted Chinese stocks.
- Market watchers still wait to see if China is willing to announce an economic reopening.
- Experts say there are five things they are watching in China following protests that rocked the market.
Chinese equity ended higher this week, as cities across the country eased COVID-19 restrictions. However, questions remain about whether the government will completely scrap its zero-COVID policy that it implemented after the outbreak in 2019.
Protests at Minimum 17 citiesTen people died in an apartment burning in Urumqi. Local residents were furious at lockdown measures that had blocked the building from being used as a blockade. In a rare display against China’s authoritarian government were protestors. Xi Jinping was reprimanded.
China’s top expert on pandemicsAlthough this week seemed to signal a moderated zero-COVID strategy, the government has yet not to promise a comprehensive reversal. Hong Kong Hang Seng IndexThe increase was 6.3% Shanghai CompositeThis week, the gain was 1.8%, but both were sharply lower for 2022 (down 20% and 13% respectively).
“Hopefully,… the Chinese government can unlock a bit more. However, China is known for its tight grip on power, according to Darrell Martin, founder of and CEO of Apex Trader FundingInsider received information from, a trading platform for proprietary trades.
Martin stated that retail investors should be ready to react defensively if Beijing’s zero-COVID policy decisions are against them.
“I believe that you need to learn to trade short on this market. That’s something that many retail traders are foreign to – where they can sell first and buy second,” he said. “There are short ETFs … and for more active investors, they can short the market in a regular trading account or investing account.”
As global investors monitor developments around the zero-COVID stance of the Chinese government, here’s what market experts are monitoring.
Market losses will increase with more crackdowns
Mark Mobius, a leading expert in emerging markets investing, said this week that Chinese stocks could be under more pressure due to the government’s response against dissent.
Mobius said that Xi can’t tolerate protests and would therefore take a tough stance against any protesters. Bloomberg TV. “More people may be detained and they’ll probably go further to control the population in many areas.”
He said, “So if that’s the case, then you need to realize that the market won’t do that well in short-term.”
FOMO is back in China
The “recent pickup in China equity inflows … suggests the fear of missing out is back,” Emmanuel Cau, European equity analyst at Barclays, wrote this week. He wrote that China’s mobility in 2022 will be lower than in 2020 when the pandemic began, but it is the reverse for Europe and the US.
“So although reopening may not go smoothly, it seems reasonable for us to expect a positive economic impulse or less growth drag next year from zero-Covid in China than this year.”
Lift in metals prices
Bank of America noted that China’s opening would increase the upside potential of certain metals. China is responsible for 50% of world metals demand.
“A second leg higher by the Fed in its tightening cycle for 2H23 remains a major downside risk to commodity price, particularly gold. However, we expect Chinese economic activity and the gradual ease of Zero Covid lending support to commodity complex to improve,” Francisco Blanch from BofA, head global commodities.
According to the bank’s statement, they are more positive on copper and other transition metals as Chinese investment in infrastructure and their electrical grid should be combined with increased sales of electric vehicles. Copper could go up to $12,000 per tonne next year and aluminum could go up to $2,738 per tonne.
China’s Re-Opening Position
Anastasia Amoroso of iCapital wrote in a note that she is bullish about energy stocks because it will help her position herself if China does indeed reopen its economy.
The country’s traffic congestion and airline bookings should be considered, along with overall mobility. [recover]She stated that it was important to support more oil demand in an otherwise constrained supply situation.
Brent crude oilFriday’s Brent crude oil prices were above $85 per barrel. The market has also lost 13% over the past month. The S&P 500 energy sector has risen modestly over the past month but it’s zoomed up 64% during 2022.
China policy is after all “impossible for prediction”
Activist short-seller Carson BlockCNBC reported this week that China has not been defining its economic policy goals, and that investors must price in such risks.
The Muddy Waters Research was founded byWall Street investment bank projections of China’s next COVID policy moves can be viewed from the perspective of a government that is open for foreign investment and raising the standard of living.
“You must understand that no one has any advantage in predicting China policy. Who is the guy who knows a lot of Chinese ‘guanxi? Block said that this doesn’t really matter any more. “So, you need to value in to the price you’re willing pay the understanding that one day you will wake up and it will be your first morning. [say]It’s down 90%. That’s because that’s where China is right now. It’s impossible to predict at a macro level.
