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China has been a hot topic over the last year amid market-moving headlines and heightened stock market volatility. U.S.-China geopolitical tensions, zero-COVID policies, real estate market turmoil, and regulatory constraints have all weighed heavily on Chinese equities. Recently, however, things have been looking up. Chinese equities ended last week on a high note, continuing the significant rebound in performance since the end of October. The CSI 300, which tracks the top 300 stocks on the Shanghai and Shenzhen exchanges, is close to bull market territory, up 19% since October 31. Chinese equities as a whole have staged an even more impressive rebound, up close to 55% during the same time frame.
Two major shifts in Chinese policy have contributed to this performance, with the first being the overhaul of strict zero-COVID policies. Beginning in December, Chinese authorities rolled back stringent guidelines by reducing testing and quarantine time for travelers, lessening isolation restrictions for COVID “close contacts”, and scrapping penalties for airlines that carried COVID cases into the country. The second shift is help for China’s struggling real estate sector. According to Bloomberg, close to 150 billion yuan ($24B USD) will be provided in relief in the first quarter to top developers. Additionally, mortgage rates and minimum down payments have been lowered, with the hope of increasing demand for real estate. Along with these shifts in policy, the dollar decline has only helped make Chinese equities more attractive.
Looking forward, despite the recent good news and market rally, Chinese markets are likely to remain volatile, with uncertainties and risks remaining. The reopening of the Chinese economy could add to global inflation pressures, COVID outbreaks have been on the rise in China, and the country has seen its greatest population decline since the 1960s. These dynamics present both risks and opportunities in the market this year and beyond, and developments will be key to emerging markets performance from here.
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