Chinese equities — which have languished this year due to the economic fallout from Beijing's whack-a-mole approach to quashing COVID-19 outbreaks — are rebounding strongly as 2022 draws to a close, buoyed by the promise of kinder, gentler policies to come.
Since November, when the government started to walk back highly restrictive policies that locked down cities as big as Shanghai and left hundreds of millions grappling with severe mobility restrictions, Chinese companies listed in Hong Kong have rebounded more than 35%.
Even so, the benchmark index for those H-share companies remains down 17% year to date.
Indexes for Chinese companies with American depository receipts, meanwhile, have jumped more than 50% over the past six weeks, but remain down roughly 14% for the year. Benchmark indexes for Chinese A shares listed in Shanghai and Shenzhen, markets dominated by local retail investors, have seen more modest gains of 12.3% and 18.7%, respectively, from April lows. Shanghai's index remains down roughly 12% from the start of 2022 while Shenzhen is 18% lower.
Market veterans say continued progress in freeing up China's economy from pandemic-related restrictions should unleash pent-up consumer demand, powering further gains for Chinese stocks and potentially providing a boost for the global economy as well.
Consumption in China has been "massively restrained" this year but that money hasn't disappeared, said David Townsend, managing director of Europe, Middle East and Africa business with Value Partners Group Ltd., a Hong Kong-listed China equity boutique with $5.2 billion in assets under management as of Oct. 31.
It's there waiting to be spent, and if the government is moving now to relax rules around COVID-19 for both local companies and the man on the street, as opposed to paying any price to suppress it, there's "huge potential in this system to be unleashed," Mr. Townsend said.
"Household bank deposits have increased by 42%" since Beijing's COVID-19 policies effectively left Chinese consumers in enforced savings mode, with plenty of spending power should optimism about the economic outlook revive, agreed Andy Rothman, investment strategist with Matthews International Capital Management LLC — known as Matthews Asia — a San Francisco-based Asian equity boutique with $17.4 billion in assets under management as of June 30.
For the moment, stocks are surging more on the promise of fewer pandemic constraints than on concrete steps in that direction, and some market participants warn that investors may be getting ahead of themselves.