Lockdowns Lead to Slowdown

April 27, 2022 | David Hernandez, CFA, Director of Traditional Manager Search

Combined column and line chart showing China PMI and COVID-19 cases. Chart subtitle: China PMI fell to a 2-year low amid renewed COVID lockdowns. Chart visual description: Chart has two y axes; left displays China PMI, ranging from 25 to 60 and corresponds with light green columns and a dotted line representing 50 as neutral PMI. Right displays 7-day Average New Covid-19 Cases for China, ranging from 0 to 35,000, and corresponding with blue line. X-axis shows monthly increments from 1/29/20 to 3/31/22. Columns align with each month label, but new cases line goes a little further, as of 4/21/22. Chart data description: Most columns are in the range of 51 to 56, but February 2020, August 2021, and March 2022 were all below neutral, at 28.9, 48.9, and 48.8 respectively. 7-day average new cases blipped up to 4,500 in early 2020 as China came to terms with implementing "Zero Covid" policies, then remained flat or very near flat until early 2022. Particularly March into April numbers have grown exponentially, with 4/21 hitting 30,000+. Chart sources: ourworldindata.org, Bloomberg. End chart description.

COVID cases have been on the rise in China over the last ten weeks, surpassing February 2020 highs by 800%. The seven-day rolling average has moved from 110 new cases at the end of January 2022 to a high of 30,500 on April 21st. Since the beginning of the pandemic, China has operated with a zero-COVID policy, combining testing and tracing with the use of lockdowns to prevent the spread of the virus. These measures have resulted in an extremely low case count compared to the rest of the world. The country’s recent high near 30,000 is still well below the U.S. seven-day average peak of 800,000 in January 2022.

China’s aggressive use of lockdowns to control the spread of the virus has impacted the country’s economic activity. March’s Purchasing Managers Index (PMI) reading was 48.8, below the neutral 50 mark, indicating a contraction in economic activity. Several Chinese cities are feeling the pressures of the recent lockdown, including Shanghai, a key finance and manufacturing hub. Many investors expect Chinese authorities to step in with supportive policies to help the country navigate the current downturn. Ultimately, however, China may need to choose between two of its seemingly opposing agenda items — its zero-COVID policy and its 5.5% target growth rate — with the choice likely to have material implications for equity markets for the rest of 2022.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

David Hernandez, CFA
Director of Traditional Manager Search

Get to Know David

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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