China Reopening Stocks Rally; Street Cautiously Optimistic

Jacob Gu and Charlotte Yang
·4 min read

(Bloomberg) -- Shares of Chinese firms tied to reopening rallied after China’s top leaders called for a more targeted approach, while reinforced the need to stick with the Covid Zero policy.

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Market watchers are cautiously optimistic that such policy fine-tuning could spur appetite for battered Chinese assets. The following is a selection of reactions from market participants and economists.

Hou Anyang, fund manager at Shenzhen Frontsea Asset Management:

This validates the rumors on loosening restrictions last week, if you look at the differences in the text, including mentioning of stepping up vaccination and drugs and making sure local governments use a one-size fits all approach to restrict movement and impose curbs.

The phrasing around “taking into account the total political cost” was also dropped.

Overall it seems like the crevice in a massive boulder, so maybe we’re just 1% on the progress bar, but its a sign that we are headed for more relaxation.

Justin Tang, head of Asian research at United First Partners:

The targeted approach indicates light at the end of the proverbial tunnel - when do we reach the end of the tunnel, that is another question, but this would be ample to spur optimism and appetite for Chinese assets which have been battered.

Hao Hong, economist at Grow Investment Group:

I think Chinese stocks and CNY will rise following the news that senior leaders in Beijing had a discussion on the Covid-fighting measures.

The fact itself shows that the very top is considering an exit from Covid Zero and that warrants being bullish.

Shujin Chen, head of China FIG research at Jefferies:

We notice that the actual target has shifted to minimize the impact to the economy and to pave the way for opening-up (vaccine + medicine).

We see this as the new potential direction set by President Xi, and more measurements are likely on the way, eg, to curb excessive Covid control.

Robin Xing, chief China economist at Morgan Stanley:

China appears to be fine-tuning Covid Zero policy to reduce economic disruption, although this could be challenging amid transmissible variants in winter.

More detailed policy announcements in the near term we look for could include shortened quarantines, less stringent contact-tracing, renewed focus on vaccination, and ramp-up in Covid treatment capacity.

We continue to expect a reopening in the spring at the earliest. Preparatory steps such as vaccination, shift in public perception of Covid fears, and expansion in medical capacity will take 3-6 months.

Xiangrong Yu, chief China economist at Citigroup Inc.:

We see mixed signals on China’s reopening prospects from today’s meeting. Less ideological emphasis and more pragmatic discussion on pandemic control could be welcomed. Yet it could be too soon to conclude that real changes are around the corner, especially with real tests ahead of us as China is coming into its first winter with Omicron.

Since Covid prevention is often overdone at local levels, a correction in implementation will be a de facto easing. In this sense, the further steps of Guangzhou and Chongqing could reflect the national policy direction.

Overall, we stick to our base case of marginal easing and preparation work in the winter and a meaningful reopening after the National People’s Congress session in March.

Larry Hu, head of China economics at Macquarie Group:

It’s clear that policymakers realize the heavy tolls from Zero Covid on the economy. That said, they could not abruptly declare the end of Covid Zero, given they have invested so much political capital in it.

The last thing they want is to be viewed as being “forced” out of it. Moreover, they have to buy more time for a shift in propaganda. As a result, the strategy is to bring the current wave under control as quickly as possible.

Meanwhile, we expect them to use the next 6-9 months as the transition period for reopening.

STOCKS TO WATCH

  • Airlines: Cathay Pacific gains as much as 5.2% in Hong Kong, Air China +5.3%, China Southern Airlines +5.2%, China Eastern Airlines +3.3%; Juneyao Airlines +5.1% in Shanghai

  • Airports: Shenzhen Airport +2.4% onshore, Beijing Capital International Airport +5.4%, Baiyun +3.8%

  • Tourism: China Tourism Group Duty Free +7.8% in Hong Kong, Trip.com +12.8%

  • Restaurants: Haidilao up as much as 9.7%, Jiumaojiu +11.5%

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--With assistance from April Ma, Abhishek Vishnoi and Jeanny Yu.

(Recasts, adds Jefferies comments and stock moves.)

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