US investment bank Goldman Sachs has estimated that a full reopening of the Chinese economy will result in a 20% gain for the country’s stock market. In a note issued over the weekend and quoted by the media, the bank’s economists say they expect the Chinese government to begin relaxing Covid rules in the second quarter of 2023.
Among signs that Beijing may be beginning to prepare for a relaxation of its zero-Covid policy, the report cited an increase in flights and the growing adoption of an inhalable vaccine developed by CanSino Biologics.
Removal of Covid restrictions could be “one of the most visible, long-awaited and powerful bullish catalysts for the market”, the Goldman analysts wrote, adding that equity markets generally react more positively to domestic policy easing than to international reopening. “Actual reopening is still months away as vaccination rates of the elderly remain low and case fatality rates appear high among the unvaccinated according to official data from Hong Kong.” they added.
The report follows China’s stock market rally last week, as the Hang Seng Chinese Companies Index notched its best weekly gain since 2015. On Monday, the index extended last week’s 9% gain. The CSI 300 Index, the benchmark for mainland stocks, was also up more than 6% on Friday, though it traded 0.4% lower on Monday.
The stock market rally was fueled by speculation that Beijing could soon relax its strict Covid policy. The gains continued even after Chinese health officials reiterated the government’s stance to stick to its zero-tolerance policy against Covid.