A near-half-trillion-dollar Chinese stock market rally, sparked by a rumor that the CCP would soon put an end to its COVID zero policy, has been reversed after the CCP reaffirmed its commitment to the harsh containment strategy.
China’s National Health Commission said on Thursday it would “firmly adhere” to its Covid Zero policy as cases again spiked across the country.
In trading on Thursday, the Hang Seng index tumbled 2.5 percent, while the Hang Seng Chinese Enterprise index, which tracks Chinese a-shares trading in Hong Kong, fell 3 percent.
The declines that followed the National Health Commission’s statement snapped a fierce two-day rally in which the Hang Seng Index gained close to 7%, fuelled by the rumours of a COVID policy shift.
Origins of the multi-billion dollar Covid Zero termination rumors
Images of what appears to be a mobile phone screen-shot stating that the Politburo Standing Committee had held a meeting with COVID-19 experts and agreed on a “conditional reopening plan” were circulating on WeChat from around Monday, United States time.
The images soon made it onto Twitter and appear to be first circulated by “Shanghai Macro Strategist” who wrote, “It’s rumored that Beijing will soon establish an expert team to put together a “conditional reopening plan.” The goal is to materially reopen the country by March next year. The upcoming 10th edition of covid guideline is widely expected to provide upside surprises.”
Incredibly there was never any official statement or any comment made by a verified source, yet it was enough to spark a $450 billion Chinese stock market rally.
“I doubt that China’s government is going to drop zero Covid any time soon. But if the rumors about the reopening commission were true, what might that mean for Chinese assets? My best guess is that stocks would do best, while counter-intuitively credit would do worst,” said emerging markets economist Adam Wolfe.
“The rumor doesn’t make any basic China politics sense. Even if an entity exists, it’s gonna be a central leading small group not a committee, and certainly not chaired by the next CPPCC chairman,” said Plenum China partner, Chucheng Feng.
However, some hope does remain of an easing of COVID-19 containment policy, should a German business delegation visiting China on Friday convince authorities to approved the German-designed BioNTech mRNA COVID-19 vaccine.
China’s exit from Covid Zero is widely viewed as a catalyst for a significant rebound in Chinese equities and more broadly speaking, upside in the global economy.
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