Consensus Sees Broader COVID Strategy Shift in Mar'23 (1/2)

• Fair to say that China reopening hopes drove local markets higher last week (Shanghai Comp +6%, Hang Seng Index +9.5%), while the USD/CNH dropped at it’s fastest rate on record on Friday – dropping as much as 2.2% intraday.
• The majority of sell-side views on the issue see Chinese restrictions being eased domestically, but at a very gradual pace that is probably yet to be decided. This leaves the consensus view that the conclusion of the political reshuffle in March next year is the most likely time at which a broader policy change will be announced.

A few sell-side views:

• Nomura write that markets should lower their expectations of a fast reopening. While Beijing may introduce some fine-tuning of Covid measures, these could be more than offset by local officials’ escalation on Zero Covid Strategy. They maintain the view that Beijing will stick with essential parts of ZCS until at least March 2023, when the political reshuffle is finally completed.
• They believe a difficult period after March 2023 appears unavoidable. If the shift towards “living with Covid” is slow, people might become quite disappointed, reducing their investment and consumption demand.
• However, if Beijing takes material steps towards ditching the zero COVID approach, the infection rate could very likely surge in a short period of time and could lead to some chaos.