Stocks recover on hope of relief from China’s COVID policy. Here's why economists think investors are too optimistic.

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Investors took some cheer this week from China’s latest COVID policy after massive anti-lockdown protests erupted across the country, rattling global...

Investors took some cheer this week from China’s latest COVID policy after massive anti-lockdown protests erupted across the country, rattling global financial markets, but economists think that markets have placed a “too high probability” on restrictions being relaxed soon.

After a sharp selloff on Monday driven by worries that China’s civil unrest and full-blown lockdown would stoke global supply chain disruptions, financial markets recovered amid hope of the pandemic policy relief. However, economists at Capital Economics are concerned that investors are too optimistic about China’s exit from its zero-COVID policy and think it will not happen soon.

For years, the Chinese equity markets had offered both domestic and foreign investors an opportunity to invest in one of the fastest growing economies in the world. However, Chinese equities have tumbled since the start of 2021 with Hang Seng China Enterprises Index 160462 down 43.3%. The iShares MSCI China MCHI exchange-traded fund slumped 46.3% since February 2021, according to Dow Jones Market Data.

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