China stocks are slumping on news of rising COVID-19 cases in the world’s most populous country but that doesn’t negate their strong rebound in recent months. The MSCI China Index has still risen by more than 20 per cent since early May, when it hit what now appears to be a trough.
It very well could be, largely because of three developments. One is a subtle shift in the central government’s COVID-19 policy, despite fresh worries about new lockdowns being imminent. Another has to do with the gradual smoothing of supply chains as 2022 progresses. And finally, Beijing has begun to introduce meaningful economic stimulus, as well as policy reforms that could spark a recovery in consumption.
Yet a shift in China’s pandemic approach seems to be under way, and it followed quickly on the Shanghai debacle. Government officials have taken to talking up their policy as “dynamic” zero-COVID – emphasis on “dynamic.” The change in tone may signal more flexibility and adaptability in China’s COVID response, where the goal is less to eradicate infections than to control spread of the disease at minimal social and economic cost.
Meanwhile, the macro policy response to China’s economic challenges earlier this year seems to be gaining traction. The government is spending heavily on infrastructure, which as the economy reopens should have a positive pass-through impact on housing and consumption.
One Covid case puts ( it ) all in the toilet !