Protests in the streets, but also the worsening economic situation, may be causing Chinese authorities to decide to make concessions on restrictions related to Covid-19. China was the last country with a firm regime against those infected. Now comes the easing of restrictions.
The Hong Kong Stock Exchange's Hang Seng 50 index has risen more than 30 percent since its low, with the iShares MSCI China A ETF up 17 percent since the end of October. This may have to do with an attempt to discount a move away from lockdowns in China and an improved outlook for the local economy along with seemingly attractive company valuations.
Chinese authorities have already signaled to ease restrictions in the form of allowing people without a negative test result to use public infrastructure like transportation or supermarkets. Moving with a valid negative result was previously mandatory. As Bloomberg reported, China is expected to announce a further relaxation of Covid control measures today - including allowing some infected people to quarantine their homes as a nationwide policy, according to people familiar with the matter. In addition, Chinese economic data may indicate that a change in direction is needed.
Source: Conotoxia MT5, CNYA, Weekly
China's trade surplus fell to $69.84 billion in November 2022 from $71.7 billion in the same month the previous year, well below market forecasts for a surplus of $78.1 billion, according to tradingeconomics. It was the smallest trade surplus since April, due to weakening global and domestic demand. Exports fell 8.7% year-on-year for the second consecutive month, due to weakening foreign demand caused by high inflation and supply disruptions. Imports, on the other hand, fell at a faster pace of 10.6%, for the second month in a row, due to weakening domestic demand as a result of widespread restrictions related to the epidemic.
Hence, easing restrictions could be key to China's economic recovery, and senior Chinese officials are debating an economic growth target, Bloomberg reported. For next year, it is expected to be around 5%, according to people familiar with the discussion, as Beijing shifts gears to support economic recovery.
Given recession forecasts for the eurozone, the UK or a slight recession in the US in 2023, China appears to be coming out on top in expectations of a GDP rebound next year.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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