A People’s Liberation Army advertisement overlooks a street scene in Beijing on the day Chinese President Xi Jinping and his US counterpart Joe Biden hold a virtual summit, in Beijing, China November 16, 2021.
Thomas Peter | Reuters
Stocks in Hong Kong and China rallied at the end of a volatile week last week, driven by speculation that Beijing may soon ease its Covid-zero policy – but Goldman Sachs economists say China could still be “months away” from reopening.
Over the weekend, Chinese health officials reiterated the government’s stance to stick to its zero-tolerance policy against Covid, even as most of the world began to lift controls.
That didn’t deter continued optimism in major Chinese markets, and the Hang Seng Tech index briefly topped 5% in morning trading in Asia on Monday.
“Actual reopening is still months away as vaccination rates among the elderly remain low and case fatality rates appear high among unvaccinated people based on official Hong Kong data,” Goldman economists said on Sunday. Sachs led by Hui Shan.
Chinese stocks could jump 20% on reopening
Goldman maintains its view that China could reopen in the second quarter of 2023.
When that time comes, it will be good news for the stock market, economists at the U.S. investment bank said, noting there could be a recovery leading to the easing of measures.
“We estimate that a full reopening could drive Chinese stocks up 20% based on empirical, top-down and historical sensitivity analysis,” said a separate note from economists including Kinger Lau.
“Stock markets generally react more positively to local policy easing than to international reopening, with domestic cyclical and consumer sectors outperforming,” the note said.
The Chinese government will likely stick to its zero Covid policy “until all necessary medical preparations are made,” Goldman analysts said.
The latest statistics from the Hong Kong government show that only 60.81% of people aged 80 and over have received all three doses.
Separate government data from Hong Kong showed the death rate among unvaccinated people aged 80 and over was 14.79%, while the death rate among those in the same age group who received three doses was well below about 1.48%.
“A safe and orderly reopening is very difficult at this time,” the memo from Goldman Sachs said.