Fresh lockdowns this week in China have spooked global markets, but investors should be prepared for a Beijing-triggered market rebound perhaps as early as the second quarter of 2023.
Asian indices slid as investors became jittery about the prospect of China re-tightening Covid rules. The Hang Seng shed as much as 3.4% on Wednesday morning. It closed down 1.9%. Mainland China’s Shanghai Composite Index lost 0.4%.
Meanwhile, MSCI’s broadest index of world shares fell 0.72%. Over on Wall Street, all three major indices were trading lower, led by a selloff in technology, energy, communication services and consumer discretionary stocks.
This highlights just how Covid policy decisions made by leaders of the world’s second-largest economy are still having a significant impact on markets around the world.
In recent days, China had begun to ease its harsh Covid restrictions, which have shackled domestic and international business for months, causing buoyancy in markets.
However, investors are now worried that Beijing’s resolve to reopen the country may weaken now as Covid-19 cases rise once again. China on Sunday reported 26,824 new cases across the country.
Guangzhou, a city of 19 million residents, is again in a five-day lockdown in Baiyun district, which is home to one of the country’s busiest airports. Baiyun is also the most populous district in Guangzhou, home to 3.7 million people.
Of course, specific criteria conditions will have to be met before Beijing eases restrictions. These include significantly higher vaccination rates and the availability of and access to adequate medical resources to tackle new waves of the respiratory disease. Should these come about, we expect a reopening could start in earnest in the second quarter of 2023.
When this happens, we expect global markets to rally considerably and quickly.
This view is echoed by Kinger Lau of Goldman Sachs, who recently noted: “China reopening could be one of the most visible, long-awaited, and powerful upside catalysts for the market,” besides the possibility of a dovish pivot by the US central bank or a cessation of the Russia-Ukraine war.
Naturally, it will be Chinese and Asia-Pacific markets that are likely to experience the upswing.
With the highly anticipated China reopening, many investors will be positioning their portfolios now.
They will be seeking to take advantage of the country’s transition from an export economy to a consumption one that will be more sustainable.
Also, China’s growing number of acquisitions of foreign brands, market networks and technologies will be another pull for global investors, as will the continuing urbanization and the reform of state-owned companies, which could shatter monopolies.
The first phase of the full reopening was always going to be patchy. But the rebound is likely to be dramatic.
Nigel Green is founder and CEO of deVere Group.