Beijing dashed hopes of an immediate easing of the country’s rigid zero-Covid restrictions, putting China-related stocks in more volatile trading on Monday, analysts said.
China’s National Health Commission reiterated the country’s commitment to eliminating Covid-19 at a press conference on Saturday and warned that the situation will become even “more serious and complex” as the country enters the winter flu season.
“Practice has proven that our pandemic prevention and control strategy. . .[is]quite correct, and such measures have proven to be the most economical and effective,” said Hu Xiang, an NHC official.
Last week, investors seized on rumors that Beijing was considering easing restrictions. Hong Kong-listed Chinese stocks had their best week in more than seven years while Shanghai-listed stocks recorded their highest weekly gain since July 2020.
Beijing has stuck to the country’s zero Covid policy, under which most international visitors are barred from entering China and cities can be locked down without notice, despite growing complaints from residents.
The daily number of Covid infections in China hit a six-month high of 4,420 on Saturday, official data showed. Soaring case numbers also meant a lower likelihood of the government easing Covid restrictions despite some recent positive signs, such as the removal of a PCR test requirement for domestic train and air travel.
“Markets have taken note of these developments and have begun to speculate on a faster exit from the Chinese government’s ‘dynamic zero-Covid’ policy,” Goldman Sachs analysts said. “However, as confirmed by the press conference, the government must still maintain its zero-Covid policy until all preparations are complete.”
Investors were also bullish after a report that China plans to cut the time travelers have to spend in hotel quarantine from 10 days to seven or eight. Former chief epidemiologist of the Chinese Center for Disease Control and Prevention, Zeng Guang, in a call hosted by Citi, also said that authorities plan to reopen the border between Hong Kong and mainland China during the first half of next year, further strengthening sentiment.
“With the start of government preparations, a price increase from reopening China in a forward-looking market may be warranted,” Goldman analysts said. “However, it should be emphasized that we are still at least a few months away from actually reopening.”
Investors are also pointing to an article in the public newspaper People’s Daily that downplays the long-term impact of Covid infections on human health, saying most symptoms were mild. This was interpreted as the state preparing the public for a possible official demotion of the Covid threat.
“The market is picking facts looking for any sign of zero-Covid relaxation,” said Feng Chucheng, a partner at research firm Plenum, in Beijing. “The key to understanding China’s policy is that the more a specific policy is highlighted, the more such a policy exit would require sophisticated maneuvering.”
Market sentiment toward Chinese stocks also improved on Friday when the US Public Enterprise Accounting Oversight Board ended on-site inspections of Chinese companies’ audit data in Hong Kong.
The move is a step toward a decision, expected in December, on whether Washington will allow more than 200 U.S.-listed Chinese companies to maintain a presence in U.S. markets. The United States is demanding unrestricted access to Chinese company accounts in a long-running dispute with Beijing.
The PCAOB declined to comment.
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