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Get ready as China edges away from zero-Covid policies
China looks to be stepping away from its zero-Covid policy — and that could have a major impact for investors. Pendal’s Head of Income Strategies AMY XIE PATRICK explains
- Stepping back from zero-COVID policy a powerful tool for Beijing
- Signs authorities are readying population for change
- Boost to Chinese economy will benefit companies globally
YOU won’t hear it from President Xi, but there are signs China’s Covid zero-tolerance policy is easing, even as case numbers climb.
“It looks like internally China is setting up to gradually step back from the zero-Covid policy — and that is the most powerful stimulus tool Beijing has at its disposal,” says Amy Xie Patrick, Pendal’s head of income strategies.
China has shut down whole cities in an effort to crush variants of the coronavirus. That’s having severe economic consequences, with factories closing, output falling and global supply chains faltering.
That in turn effects businesses (and their investors) from Apple iPhones to BHP’s iron ore exports.
A nuanced approach
“Beijing isn’t, and won’t, come out and drop the policy,” Xie Patrick says. “There’s not going to be any big headlines about it,” Xie Patrick says.
“It’s more nuanced.
“China has started allowing imports of the Pfizer pill and it’s covered under public medial insurance as a treatment for Covid,” she says. The Pfizer drug has been found to cut the risk of hospitalisation or death in people at risk of severe Covid-19 by up to 90 per cent.
“They are setting up the hospital system to deal with different levels of urgency of Covid cases – reserving hospital care for those most affected,” Xie Patrick says.
“One of the most important signals is that state media in China is talking more about Covid and emphasising the much milder symptoms of the Omicron variant.
“Beijing is using the state media to influence public opinion to try and change the public perception of Covid.
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“The simple fact is that case numbers are intensifying despite the doubling down of lockdowns.
“Authorities have to realise they can’t keep operating like this. Every day it costs a certain amount of GDP and lockdowns are not an economically viable solution.”
It means investors can discount some of the doomsday scenarios around the Chinese economy, Xie Patrick says.
While the official growth forecast this year is 5.5 per cent, many market watchers are forecasting much less.
Xie Patrick believes achieving 5.5 per cent will be a challenge because of the downturn in the property market.
But dropping of the zero-COVID tolerance policy, covertly, is a policy tool Beijing can use.
“Retail consumption can thrive again because people will be allowed to go out again. When Chinese people change their mentality of living with COVID, then economic activity can return to normal.
“It’s the strongest policy tool China has to stimulate the economy.”
About Amy Xie Patrick and Pendal’s Income and Fixed Interest team
Amy is Pendal’s Head of Income Strategies. She has extensive experience and expertise in emerging markets, global high yield and investment grade credit and holds an honours degree in economics from Cambridge University.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. Pendal won the 2023 Sustainable and Responsible Investments (Income) category in the Zenith awards. In 2021 the team won Lonsec’s Active Fixed Income Fund of the Year Award.
The team oversees some $20 billion invested across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at March 23, 2022.
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