J.P.Morgan Look At How To Play The Shorter Qurantine Time

J.P.Morgan note that “Covid fears and skepticism about activity rebound have been at the core of bearish CNY trades, and will unlikely fade completely in the short term. We don’t think the new guidelines mark the start of the end to China’s overall Covid-zero policy. Measures are mostly put in place as a formulation of lessons learned from the past wave as officials strive to build a system that hopefully functions better in early detection and more timely control of contagion risks in the future. The immediate macro impact from the new guidelines is unlikely to be material given the marginal change included so far but the move itself is risk positive as an indication of greater flexibility authorities are willing to adopt in the face of the dual challenges of balancing Covid-19 mitigation with supporting economic growth. It raises the questions of whether additional Covid relaxation measures are in the making in H2, which looks still rather underpriced given the general perception that China’s Covid-zero policy remains firm and static. However, reopening does not suggest a clean outcome for CNY FX. If easing of mobility curbs is mostly domestically focused and the new Covid control framework proves solid enough to withstand the next wave (not our baseline) it could pose more meaningful upside risks to China’s H2 cyclical outlook and challenge the scope of CNY’s underperformance penciled in our forecast. However, eased quarantine rules and border controls at the same time could risk rising tourism outflows that are negative for China’s BoP over the medium term. As such, being bullish equities and paid rates could be the cleaner expression than long CNY FX, if Chinese authorities continue to surprise the market with additional reopening measures.”