Equities covid
Fundamental Analysis

Equities Rebound as Investors Expect Covid-19 Restrictions to ease in China

  • Beijing’s ban on equity refinancing for listed property enterprises was lifted.
  • There are rumors recent Chinese protests will lead to an early easing of restrictions.
  • Analysts believe that the Fed will remain hawkish and disappoint investors.

Tuesday saw a surge in Asian equities as Beijing’s latest initiative to encourage developers boosted the real estate market, and rumors circulated that recent upheaval may have prompted an early loosening of COVID-19 restrictions.

Hang Seng China Enterprises Index (Source: Bloomberg)
Hang Seng China Enterprises Index (Source: Bloomberg)

The speculation was fueled by rumors that Chinese health officials would conduct a news conference on Tuesday to discuss coronavirus management measures.

“News of the press conference at 3 pm (0700 GMT) came out, and I think that has gotten the market excited over the possibility that we could see China continue to ease up,” said Khoon Goh, head of Asia research at ANZ.

“The yuan has rallied, and basically, Chinese equities and everything else in Asia have responded positively to that.”

Shares of Chinese real estate companies soared following lifting of the country’s securities regulator’s ban on equity refinancing for listed property enterprises. As a result, Chinese blue chips increased by about 3%, marking the biggest one-day rally in a month and a significant turnaround from Monday’s steep declines.

Thomas Barkin, president of the Richmond Federal Reserve Bank, is the latest official to pour cold water on rumors that the Federal Reserve will soon change its stance on interest rates in the coming year.

This increased tensions before Fed Chair Jerome Powell’s speech on Wednesday, which is expected to be a big messaging event as markets wait for a policy change. Analysts believe investors might be let down.

“We envision him confirming a slower pace of hikes at the December meeting, which is almost entirely priced in,” said Jan Nevruzi, an analyst at NatWest Markets. “But we also think he will reiterate that the Fed intends to stay in the restrictive territory through next year.”

“The softening in the October CPI was welcome news, but hardly a complete victory yet, while growth and labor market data are still strong,” he added. “It doesn’t feel like there is upside for Powell to dial back on the hawkishness.”

The president of the European Central Bank, Christine Lagarde, has cautioned that inflation in the eurozone has not peaked and may rise even higher, joining the Fed in its hawkish stance. Equities might be headed for more losses if it turns out that there is no Fed pivot.