In late November of 2022, citizens across China took to the streets to protest against Beijing’s COVID-19 restrictions. The government responded by loosening the restrictions and eventually lifting them altogether on January 8th. This reopening of the economy, with vaccination rates still low, resulted in a chaotic surge of infections and deaths, slowing the economy and creating public discontent.
Despite these challenges, financial markets have reacted positively to China’s reopening. The China MSCI Index dropped 40% in the first ten months of 2022, but has since rebounded by more than 50%. This has led to speculation that if China can navigate its current challenges and get its economy rolling again, it could have a positive impact not just on the world’s second-largest economy, but also on emerging markets as an asset class.
The Chinese government has signalled more support for the property sector and its financing needs, and has avoided outright conflict with the West. This could be part of a wider move away from some of its most market-antagonizing policies of the past couple of years. However, the most important factor to watch is consumer spending. If household savings are spent, it could lead to a massive increase in purchasing power, which would translate into GDP growth. Companies such as Trip.com Group Ltd. and Melco Resorts & Entertainment Ltd. are well-positioned to capitalize on resurgent consumer demand, and countries with strong export ties to China, such as Taiwan, South Korea and Southeast Asian markets, could also benefit.
Overall, China’s reopening has brought optimism to financial markets and investors, and there is hope that the country can navigate its challenges and get its economy back on track. If this happens, it could have a positive impact on both the Chinese economy and emerging markets as an asset class.