Kerley adds that there is a risk the reopening will lead to a rapid increase in the infection rate, and this serves to restrict supply chains again as workers take time off.
This is something that Bank of America investment strategist Thomas Pearce has been monitoring.
He says: “China’s decision in December to reopen its economy despite a high case count, low natural immunity and low vaccination rates appears to have gone better than feared.
“While the spread of infections has been significant, it has also been rapid, with officials declaring that the peak of infections has already passed.”
Pearce continues: “The data flow so far points to more economic resilience than expected. Even if the lunar new year holidays cause a second wave of infections, the relatively minimal damage the massive exit wave has imparted on the economy so far suggests limited scope for renewed economic and, hence, market worries.
“With the negative scenarios around reopening likely behind us, the main question now is, how much of a China reopening boost is already discounted in the market?”
And attempting to answer his own question, Pearce says he believes that markets are already reflecting the possible upside from China’s reopening and is particularly cautious on European equities, which might be expected to be the major beneficiary of the country’s reopening as he expects the higher interest rates implemented in 2022 to drag equities down this year.
China’s role in boosting the global growth after the financial crisis was a major theme of the past decade and, given the reaction of equity markets to the reopening, the outlook for that economy will have a major bearing on investors’ portfolios for the year ahead.
David Thorpe is investment editor at FTAdviser
david.thorpe@ft.com
