The easing of China’s corona policy may have a positive effect on the markets

| Ronan Menachem, chief market economist of Mizrahi Tefahot

The weak data in China probably tips the scales in favor of real easing of the authorities’ zero-tolerance policy towards the corona virus – a policy that has been going on for 3 years, in the place where it all started.

One of the “last straws on the camel’s back” concerns China’s service industries. This morning it was reported that they recorded another contraction, the third in number, in the month of November, with a sharp drop in employment and new orders. In the absence of enough new orders, the long-awaited recovery in the giant country is getting farther and farther away – so the sentiment is also at an 8-month low.

As elsewhere, any weak economic data that may result in less restrictive policies (in the case of China, in the medical field) is a positive signal from the market’s point of view.

The reports that came from China at the end of last week show that several large cities in the area, such as Shanghai and Shenzhen, have begun to ease restrictions. Among other things, it was reported that a home quarantine was allowed, a quarantine in centralized facilities was passed in case of confirmation of the virus.

It seems that the weak economic data and perhaps also the rare protests that took place in the country are giving their signals. Let’s recall that the Chinese authorities, as a state of provinces, rely on the ability of the governors of the provinces to provide livelihood and employment to the residents. The protests I mentioned caused, first, stock markets around the world to fall, fearing short-term negative effects; Therefore, when it was reported that the authorities had restrained them, there was a recovery.

However, if these protests add to the weak economic data and make China’s policy towards the corona less harsh, the medium-term benefits to the Chinese economy and the global economy will be greater.

In any case, the markets are hoping for this kind of news from China, and even if the authorities have not yet issued an official announcement about it, signals given recently, and now also actions on the ground, are already spurring them on.

At the end of the day, China is moving further and further away from the growth targets set by the authorities (5.5%+), which are also much lower than the growth rates they were used to in the past.

In my estimation, this issue will take the forefront of the Chinese government’s system of considerations, even “at the expense” of the corona virus, taking advantage of the fact that its current strain is less lethal.

Globally, a combination of easing in China and a slowdown in interest rate hikes in the US may have a positive effect on the markets. However, volatility will continue, as long as no official announcements are made in either case.

The writer is Chief Market Economist of Bank Mizrahi Tefahot. This review is not intended to be a substitute for investment marketing that takes into account the data and the special needs of each person.

Facebook
Twitter
LinkedIn
Pinterest
Pocket
WhatsApp

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Recent News

Editor's Pick