Zero-Covid policy change ‘main theme for market’
Research firm Alpine says a stronger approach to risk-taking is justified
China’s political will to impose strict lockdowns is exhausted and policy reflation will become the dominant theme for the economy and stock market, justifying a stronger approach to risk-taking, according to investment research firm Alpine Macro.
The market’s resilience in recent weeks, amid a resurgence of Covid-19 cases, suggests investors have looked beyond the current spate of infections to bet on a likely change to Beijing’s zeroCovid regime, chief China strategist Yan Wang said in a report yesterday.
“Beijing will either voluntarily phase out the policy or be forced to do so,” Wang wrote. “Beijing’s political will to impose prolonged strict lockdowns is exhausted, not only due to the enormous economic costs, but also the overwhelming pandemic fatigue and discontent among the population.”
A willingness to ease pandemic restrictions soon after the Communist Party’s national congress in October, and a slew of policy directives to rescue the property market, are early signs of a change in thinking among policymakers.
They have prompted money managers to latch onto the so-called reopening bets that Goldman Sachs said could be a prelude to a 20 per cent rally in stock prices.
Montreal-based Alpine Macro’s bold forecast contrasted with views from Wall Street or European investment banks.
Goldman Sachs sees a 30 per cent probability of reopening before the second quarter next year, including some chance of a “forced and disorderly exit” following reports of unrest in mainland cities over the weekend.
Local stocks surged yesterday, after the market regulator lifted a six-year ban on equity financing by property developers to ease a credit crunch. The Hang Seng Index has risen 24 per cent in November, on track for its best month since October 1998, while the CSI 300 Index’s 9.7 per cent rally is the best since July 2020.
Still, the latest wave of coronavirus outbreaks, with daily infections topping 40,000 for the first time, and protests in Beijing and Shanghai, have stoked fears that the nation will roll back its easing measures. Wang said the concerns were unwarranted.
“The Omicron variant has become much less serious compared with previous variants,” he wrote. “Chinese vaccines have proven equally effective in preventing severe cases and fatalities, based on evidence from many developing countries that relied predominantly on [its] vaccines.”
Alpine Macro has an overweight recommendation on Chinese stocks with its emerging markets equity allocation.
“The bottom line is that China will continue to exit from its zeroCovid policy chaotically but surely,” Wang wrote. “There will be relapses and setbacks. Meanwhile, policy reflation will become the dominant theme for the economy and stock market.”