Goldman Sachs: Rising Covid Cases Temper Reopening Enthusiasm

Goldman Sachs note that “China's economy is currently in a tug of war between weakening macroeconomic fundamentals and increasing reopening hopes.”

• “In terms of fundamentals, activity data broadly weakened in October and missed (low) expectations, and our high-frequency trackers such as new home sales, auto sales and mobility softened even further in November.”
• “As a response, policymakers in recent weeks rolled out “20 measures” to improve Covid control policy and “16 measures” to support the economy, but implementation is already proving to be challenging.”
• “There are an increasing number of cities including Beijing, Guangzhou, Chongqing and Shijiazhuang that have recently re-imposed district-based lockdown measures.”
• “Looking ahead, we expect the Chinese economy to display a distinct “two halves” next year: we forecast meaningfully below-consensus growth in H123 but above-consensus growth in H223.”
• “As China heads through a difficult winter towards an eventual re-opening, we continue to think that the currency is not the best way for investors to position for reopening since, among other reasons, the PBoC is likely to avoid too strong a currency during a nascent growth recovery and export downturn. Instead we think CNH is likely to underperform NJA FX (including KRW), and we continue to recommend that investors stay short CNH vs long KRW.”