Investors are putting too much faith in China's reopening as sick workers will drag on the economy, Saxo strategist says
- Investors shouldn't count on China's reopening to run smoothly, a Saxo Markets strategist has warned.
- Beijing pivoted away from its zero-COVID strategy last month, fueling hopes of an economic rebound.
Investors should be cautious in pricing in the potential economic benefits of China's reopening, given increasing numbers of workers are calling in sick, a Saxo Markets strategist has warned.
Charu Chanana said Wednesday that Beijing's pivot away from its zero-COVID policies is unlikely to run smoothly – clashing with Wall Street's optimism that its latest move could fuel a stock market rally.
"I do not really doubt the commitment of the authorities to move away from these zero-COVID policies that they had in place for much of the year," she told Bloomberg TV. "But what is really important to watch is that there are lots of workers calling in sick so there will be a slowdown in activity because of the amount of cases that we see now."
"That will impede the positive effects that we get out of that reopening trade that we've all been running after over the last two or three weeks," Chanana added.
China is currently experiencing a surge in COVID-19 cases after the ruling Communist Party lifted most lockdown restrictions last month.
Workers calling in sick would likely weigh on economic activity by driving down production levels.
Chanana's warning comes despite top banks' relative bullishness on Chinese equities.
Goldman Sachs said last month that an economic reopening could inject $2.6 trillion of value into the country's stock market, while Morgan Stanley strategists predicted that the move away from zero-COVID will fuel a 13% rally in the benchmark Hang Seng index.
But semiconductor 'chip wars' with the US, a debt crisis in the property sector, and a rerouting of supply chains away from China could also weigh on the country's economy, Chanana said.
"I think with all of that we are a little bit cautious of overpricing this reopening trade at the moment," she told Bloomberg.