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Will Risk Sentiment Improve When China Reopens Fully From Covid Restrictions?

Posted Friday, November 4, 2022 by
Skerdian Meta • 2 min read

I know that this would have sounded crazy until the end of the previous decade, but now people have gotten used to it. The lockdowns continue in China as it still employs the Zero Covid strategy, hurting its economy and the production/supply lines.

Here was the original rumor, which started in Chinese:

Heard that “Reopening Committee” has been formed & led by Wang Huning, Politburo Standing Member. The Committee is reviewing COVID data from US/HK/SG to assess various reopening scenarios, target 03/2023 reopen.

This was followed by a Bloomberg report, which wasn’t the strongest denial:

Chinese Foreign Ministry spokesman Zhao Lijian said he’s “not aware of what you mentioned,” when asked whether the government formed a committee to assess ways to exit covid zero.

Now China isn’t the UK, so not everything is leaked before it’s implemented.

Two things are important here:

1) This is a taste of what’s to come when China does reveal some kind of reopening: the US dollar is softer, equities much strong (+5.2% in Hong Kong) and Oil up 2% in a classic risk-on bid. I don’t discount what happened in Australia either with the RBA doing just 25 bps. Treasury yields are down around 14 bps across the curve today and that’s not exactly a reopening trade.

2) There is some talk that China will never reopen but that’s tough to believe. A much better bet is that it’s coming and when the market knows something is coming, it can be surprisingly patient. So whether that’s in Q1, Q3 or 2024, it’s coming.

Update: CNBC China correspondent Eunice Yoon made some interesting points about the report:

It came from social media
The guy who is purported to lead it is the chief propagandist, not an economist or scientist (Wang Huning)
There’s nothing in the Chinese media about the rumor or the denial, which she said is a sign that is very sensitive

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