Explainer | As Shanghai reopens, what Day 1 without stringent Covid-19 prevention measures will look like

Shanghai, China’s commercial and financial capital, is set to relax a two-month long citywide lockdown on Wednesday. The city will do so in a phased manner, with the goal of returning to normal by the end of June.

The Shanghai Composite Index, which tracks the 2,096 companies listed on the local exchange, had dropped 0.8 per cent through Monday since the lockdown was enacted on March 28. The gauge has recouped most losses caused by the pandemic, thanks to Beijing ramping up policy loosening, lowering banks’ reserve requirement ratios and cutting mortgage rates for first-home purchases.

Stocks will, however, continue to face a challenging environment. Investment banks from JPMorgan to UBP have said that China’s economy will probably contract this quarter as a result of the lockdown in Shanghai and elsewhere, because of halted production and logistic snarls. And while the market has mostly reached a consensus that the worst of the current Covid-19 outbreak was behind it, a key question investors are asking is whether all headwinds from the economy and corporate earnings have been priced in.