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Sinovac Study Spurs Bets on Further China Policy Easing

Sinovac Study Spurs Bets on Further China Policy Easing

Bets on further policy support kept Chinese shares supported Wednesday, as market watchers looked through the risk that a worrying vaccine study posed to the country’s reopening.

Research showed the vaccine made by Sinovac Biotech Ltd. -- the dominant shot in China -- doesn’t provide sufficient antibodies to neutralize the omicron variant. In turn, Sinovac said its vaccine is 94% effective for those who get three doses. The studies come the week China reported its first case of the highly-transmissable coronavirus strain. 

The Shanghai Composite Index fell less than 0.5% as traders bet the potential blow to the reopening could spur authorities to act quicker to stabilize growth. Investors have already been wagering on easier monetary policy thanks to the impact of the country’s property crisis.

Sinovac Study Spurs Bets on Further China Policy Easing

Mainland Chinese shares have proven a relative haven since omicron first shook markets in late November, modestly outperforming global peers.

Here’s what market participants are saying:

Silver Lining

Gary Dugan, Global CIO Office

“We assume the authorities will work extra hard to keep omicron at bay, which ultimately may mean tougher lockdowns within the country. The silver lining could be that the government steps up its fiscal support the economy with targeted measures to keep growth solid.”

The news will put a dent in China’s reopening trade.

Reopening Risk

This poses “a risk to the China reopening trade. The world’s second-largest economy has been hampered by strictly enforced lockdowns, with retail sales sharply missing estimates in November.”

It may “put further dents into an already tough outlook for the Hang Seng Index” and is of particular concern for Macau casino stocks.

Lockdowns in the Zhejiang province, which is a major industrial hub, place about 500,000 people in quarantine. This may bode ill for neighboring countries that see heavy Chinese tourism, such as Thailand, Vietnam and Malaysia. The Aussie dollar may also be placed at risk, given that China is Australia’s largest trading partner.”

The PBOC could step forward with further policy easing.

Support Needed

Kerry Goh, Kamet Capital Partners

More policy support is needed because of sharper economic slowdown caused by regulations for property, tech and other sectors. It is unusual for China to miss its GDP forecast in the first year post plenum.

“China policy is turning more balanced and less restrictive, completely opposite of U.S. policy. China should outperform latest from 1H 2022.”

Bumpy Recovery

Ming Ming, Citic Securities

“The market hasn’t fully priced in the omicron impact, it is still a risk that cannot be ignored in the future.”

“As the epidemic prevention efforts may be strengthened in the future, the recovery of the consumption and service industries is expected to be more bumpy, and the target to make the growth stable may be under pressure. It is not ruled out that some credit easing policies may be implemented in advance.”

Small Study

Mia He, Bloomberg Intelligence

“I don’t think the variants would impact significantly on the re-open of the national door as long as the vaccination rate is achieved. But less efficacy of China jabs may lead some delay of reopening or facilitate the booster injection domestically.”

“To be specific, 25 people is a very small population, it isn’t sufficient to make the conclusion.

©2021 Bloomberg L.P.