Goldman Sachs says China is still ‘months away’ from reopening

An advertisement of the People’s Liberation Army overlooks a street scene in Beijing on the day Chinese President Xi Jinping and his U.S. counterpart Joe Biden hold a virtual summit, in Beijing, China, November 16, 2021.

Thomas Peter | Reuters

Stocks in Hong Kong and China rallied at the end of a volatile week last week, driven by speculation that Beijing could soon ease its Covid-zero policy — but economists at Goldman Sachs say China may still be “months away” from reopening.

Over the weekend, Chinese health officials reiterated the government’s stance of sticking to its policy of zero-tolerance against Covid, even as most of the world has started lifting controls.

That didn’t stop continued optimism in greater China markets, and the Hang Seng Tech index surged past 5% briefly in Asia’s morning trade on Monday.

We estimate that a full reopening could drive 20% upside for Chinese stocks…

“The actual reopening is still months away as elderly vaccination rates remain low and case fatality rates appear high among those unvaccinated based on Hong Kong official data,” Goldman Sachs economists led by Hui Shan said in a Sunday note.

China stocks may jump 20% at reopening

Goldman maintains its view that China could reopen in the second quarter of 2023.

When that time comes, it will be good news for the stock market, economists at the U.S. investment bank said pointing out that there could be a rally leading up to the easing of measures.

“We estimate that a full reopening could drive 20% upside for Chinese stocks based on empirical, top-down, and historical sensitivity analyses,” a separate note by economists including Kinger Lau said.

“Equity markets usually react more positively to local policy relaxation than to international reopening, with Domestic Cyclicals and Consumer sectors outperforming,” the note said.

Read more about China from CNBC Pro

The Chinese government will likely stick to its zero-Covid policy “until all the necessary medical preparations are done,” Goldman’s analysts said.

The latest Hong Kong government statistics show only 60.81% of people aged 80 and older have received all three doses.

Separate government data from Hong Kong showed the fatality rate among the unvaccinated people who were 80 years and above was at 14.79%, while the fatality rate of those in the same age group who received three doses was far lower at about 1.48%.

“A safe and orderly reopening is very difficult right now,” the Goldman Sachs note said.

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