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China stock market
Opinion
Nicholas Spiro
Nicholas Spiro

Macroscope | Why zero-Covid China is looking more appealing to global investors

  • For the first time since Chinese stocks began their prolonged slide, a sustained rally has convinced many that the tide has turned
  • The most important driver is the growing belief among traders that the worst of the zero-Covid-induced downturn has passed

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People walk across a bridge showing stock exchange data in the Lujiazui financial district of Shanghai, on June 8. Photo: EPA-EFE
Nicholas Spiro
Until this week, it seemed like it was the best-kept secret in financial markets. Eclipsed by the dramatic fallout from the aggressive tightening in monetary policy in advanced economies, a two-month-long rally in China’s beaten-down stocks has been gathering steam.

Despite a brutal sell-off across all major asset classes, with the benchmark S&P 500 index experiencing its worst first half of the year since 1970, Chinese equities have continued their ascent.

On Tuesday, the marked improvement in sentiment towards China suddenly took centre stage. David Ingles, a Bloomberg TV anchor in Hong Kong, said in a flurry of tweets, “it’s like a switch just flipped on in Chinese markets”.

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The scale of the rally is remarkable. The CSI 300 index of Shenzhen- and Shanghai-listed shares has surged more than 15 per cent since its low on April 26, approaching a bull market that is usually defined as a rise of at least 20 per cent from a previous low. The technology-heavy ChiNext is already in bull market territory, as is the Hang Seng China Enterprises Index.

For the first time since Chinese stocks began to fall precipitously in February last year, a sustained rally has convinced many investors that the tide has turned. While various domestic and external factors are at play, the most important catalyst is the growing belief among traders that the worst of China’s “zero Covid”-induced economic downturn has passed.
Such optimism is hard to square with the persistent weakness of the economy. Retail sales contracted year on year in May while industrial output barely expanded. In the all-important property sector, home sales and investment fell by an annualised 41.7 per cent and 7.8 per cent respectively, according to Bloomberg data.
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