Global investors cheer on China reopening hopes


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Global traders are feeling more bullish on China, as they bet that the country will gradually lift Covid restrictions after widespread protests.

Several cities in China eased COVID-19 restrictions over the weekend. Starting Monday, Shanghai residents will no longer need a negative COVID test result to enter outdoor spaces including parks and natural attractions.

Investment bank Morgan Stanley (AANXX) has upgraded its outlook on the future performance of Chinese equities for the first time in nearly two years.

“A number of positive developments along with a clear path toward a reopening warrant an upgrade and an index target raise for China,” its analysts said in a research note on Monday. He upgraded China shares from “equal-weight” to “overweight” from January 2021.

“We are at the beginning of a multi-quarter correction in earnings revisions and valuations,” he said.

Bank Recommends that investors increase their investment allocation to offshore Chinese equities. MSCI China, an index tracking major Chinese stocks available to global investors, will reach the 70 level by the end of 2023, according to Morgan Stanley. This would be an increase of 14% from its current level.

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It raised its target for Hong Kong’s benchmark Hang Seng index to 21,200 by the end of next year. It is up 10% from its current level.

The offshore yuan, a key gauge of how international investors view China, strengthened sharply against the US dollar on Monday. It rose more than 1% to trade at 6.947 per dollar, breaking the crucial $7 level for the first time in more than two months.

In the domestic market, the yuan, also known as the renminbi, rose even more, last trading up 1.4% to 6.957 per dollar.

The Hang Seng climbed more than 4% on Monday after posting a 27% gain in November, its best monthly performance since 1998. Mainland China’s benchmark Shanghai Composite was up 1.7% after gaining 9% the previous month.

In addition to Shanghai, the nearby city of Hangzhou no longer requires people to scan QR codes or provide COVID test results when taking public transportation and entering public places, except in some places designated as high risk such as senior citizen homes and kindergartens.

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The major cities of Beijing, Tianjin, Shenzhen, Wuhan and Zhengzhou have also eliminated the requirement of a negative test to ride public transport. In the southwestern city of Chongqing, the government has told citizens not to get tested for COVID “unless necessary”.

However, many restrictions remain in place. In Beijing, public places such as malls and office buildings still require Covid test results, even as the sudden removal of testing kiosks in the capital and other cities has led to long lines at the remaining testing locations.

Goldman Sachs, which had a baseline scenario for China to reopen in April, said on Monday that an earlier exit had increased.

China’s consumer stocks also rose on Monday. Major hot pot restaurants Haidilao and Xiaoxiabu were up 6% and 7%, respectively. Bubble tea chain Nayaki Holdings gained 8%.

In commodity markets, oil prices moved higher last week after posting first weekly gain in four weeks. US crude and Brent crude were both up 0.7% in Asian trade.

Copper and iron ore closed higher last week. According to analysts at ANZ, the easing of restrictions and recently announced asset support measures will boost buyer demand for the world’s top commodities.

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However, analysts also cautioned that China may still be far from completely ending its zero-Covid policy.

“We caution that the road to reopening could be gradual, painful and bumpy,” said Nomura analysts. “A large wave of Covid infections over the next few months could disrupt production and supply chains to some extent.”

On Monday, a private business survey showed China’s services sector contracted for a third month in a row. The Caixin/S&P Global Services PMI, a closely watched business survey, slipped to 46.7 in November from 48.4 in October, its lowest level in six months.

On the same day, analysts at Jefferies said that the Chinese economy had With the deterioration of many indicators, and lost momentum.

“Like we said before, the economy is so bad, ‘they will need to throw everything at the economy now,'” he said.

However, according to economists, the reopening should be enough to raise growth expectations.

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