China markets are strong again today, despite the National Health Commission saying over the weekend that they would strictly adhere to its current covid-zero measures.
Well, duh.
My take is that they didn’t come out to calm the markets and investors. They did it to remind locals not to mess around with current covid control measures, and to adhere to the law. Social order is the key driver for China’s covid-zero controls. If people started preempting a relaxating of restrictions, and everyone started wearing their masks a little less, it could catalyse another outbreak.
Markets didn’t care though - HSI is up 3.7% since the open.
Aside from the rumours of covid policy changes I mentioned last week, the inhalable vaccine rollout has also accelerated, adding to some positive sentiment.
I re-iterate my stance that risk-reward for China looks positive now.
Meanwhile, US futures are down, with negative news on Apple AAPL 0.00%↑ cutting outlook for iPhone shipments on China’s factory lockdowns.
So China is up today because covid lockdown concerns are abating, but US is down today because of covid lockdown concerns?
I think part of the reason is how beaten down HSI multiples are versus SPX - P/E ratio for Hang Seng Index is the lowest it’s been. Ever.
Unless China sees a structural shift away from economic progress (which I don’t think is likely to happen), this multiple de-rating is not sustainable.