Markets Respond to China Lifting COVID-19 Restrictions

The latest news coming out of several different arenas seems to already be affecting the markets this morning, with major Asian Indices receiving a bump in value. Let’s take a closer look at what may be restoring investor confidence this Thursday morning:

COVID-19 Restrictions Eased

It seems that authorities in the world’s most populous country may be backing down from the controversial ‘zero-COVID’ policies that have kept millions confined to their homes and thrown a monkey wrench into global manufacturing supply chains throughout much of 2022. 

The severity of measures taken by the Chinese Communist Party in the effort to halt the spread of COVID-19 in its tracks has led to widespread protests in recent weeks. However, now the infected will no longer be forced to quarantine in isolation camps away from home, and movement within the country will also be subject to fewer restrictions. 

Some, both within China and abroad, have been meeting this news with optimism. As early as next year, the world’s second-largest economy could reopen to foreign travel, giving markets from New York to Tokyo a boost. Many China-watchers are positing that the country’s government has come to the conclusion, similarly to that of other nations across the industrialised world, that after nearly three years of pandemic restrictions, the time has come to ‘live with the virus’. However, the effects on the global economy of the end of zero-COVID may, in the end, not all be positive. (Source:BBC)

Inflation Concerns Persist

Inflation has been a central concern of policymakers and average citizens alike around the globe for much of this year as rapid rises in consumer prices put pressure on pocketbooks and leave central banks scrambling to keep up. Despite inflation rates reaching levels unseen in decades across many industrialised countries, some are saying that without China’s self-imposed isolation, consumer price hikes could have reached even further skyward.

Now that a reopening of the Chinese marketplace seems to be in the cards, hopes for a relief in the rise of inflation in 2023 could be dashed. A jump in consumer spending in China might very well lead to a rise in the prices of key Commodities like Oil (CL) and Natural Gas (NG), as well as have a deleterious effect on the United States’ Consumer Price Index (CPI). 

Such a quick turnaround from this year’s trends, which saw a broad-based slowing in the Chinese economy’s growth, could have ripple effects far beyond Chinese shores. However, this morning it seemed that the mood on Asia’s trading floors was generally positive.

The Hong Kong-based Hang Seng Index (Hong Kong 50) had marked a 3.3% jump in value as of the time of writing, partially helping to recover a 16% fall so far this year, while the FTSE China A50 Index (China A50) had risen by nearly 0.16%. In contrast, Tokyo’s Nikkei 225 (Japan 225) dropped by 0.4% over the course of the trading day. (Source:Bloomberg)

While traders and investors alike may be feeling encouraged by the prospect of a return to higher growth rates in China, issues springing from persistent U.S. inflation and the accompanying hawkish response on the part of the Fed, set to conclude its next summit on December 14th, are still casting shadows of doubt regarding the global economy as a whole. The lifting of many of China’s infection-control restrictions may have come as welcome news to traders this week, but how market sentiment will move in the weeks to come and into 2023 remains to be seen.