Investors bet China’s rally on easing COVID curbs will be furious but fleeting

Investors piling into China’s tourism, catering and beverage stocks as Beijing eases strict COVID-19 curbs are also keeping an eye on the exits, factoring in risks of a surge in infections early next year that could hit consumption and production.

Many investors say that stocks of drug makers and medical equipment companies, however, will likely get a more lasting lift from China’s bumpy journey towards an eventual economic opening.

China’s stocks and currency have jumped and global banks have turned more bullish on its prospects, as Beijing moved towards a more targeted zero-COVID-19 policy while reducing virus testing and quarantines, after it was confronted by widespread anti-lockdown protests.

Zhang Kexing general manager of Beijing Gelei Asset Management, said he has made big bets on duty-free shopping, home furnishing and food and beverage stocks that will benefit from easier COVID-19 rules, but some are merely short-term wagers.

“If other economies offer any guide, the consumption recovery is likely to disappoint in the short term after an economic reopening,” Zhang said.

A study by Chang Jiang Securities on the correlation between economic growth and COVID-19 related policies in Asian economies concluded that relaxing COVID-19 rules does not lead to a sustainable recovery in consumption.

A possible jump in infections and deaths could curtail social activity and hurt retailers, according to the study, based on data from Singapore, South Korea, Indonesia, Vietnam, Thailand, Hong Kong and Taiwan.

Christopher Beddor deputy China research director at Gavekal Dragonomics, said, “I think it’s reasonable to think that as infections rise, they’re going to have shortages in some areas of workers.”

Grow Investment Group chief economist Hong Hao, warning of confusion and chaotic expectations ahead, recommended internet platform companies and food delivery firms in the short term.