Investing

Stocks Tied to China's Economy Rally on Easing Restrictions. Should You Bank on the Re-Opening Trade?

Chinese listed stocks on US markets traded broadly higher on Tuesday after Chinese health authorities unveiled plans to lift Covid-19 quarantine requirements on international travellers from the 8th of January in 2023.

Chinese authorities made the announcement late on Monday evening, the latest step in the gradual reopening of the world’s most populous country. Under the new policy, inbound travellers will no longer need clearance from Chinese Embassies/Consulates as long as they can provide negative PCR tests within 48 hours of departure.

Additionally, governing bodies will scrap restrictions on cross-border flights, allowing airlines to operate more routes with no restrictions on passenger loads.

The country is home to 1.4 billion residents and plays an important role in global supply chains. The move to unwind restrictions should ease inflationary pressures on supply chains and be a net positive against inflationary headwinds for the global economy in 2023.

The policy relaxation will also boost China’s cross-border travel industry which has been impacted over the last 3 years.

The latest developments have provided investors and traders with the opportunity to bank on the China reopening trade with potential similar trends that were experienced in western markets.

Many of the US listed ADR’s rallied overnight on the news, clawing back some of 2022’s losses:

E-commerce companies Alibaba (US:BABA) rose 4.9% over the day, bringing annual losses to -25.35% for 2022, while JD.com (US:JD) rallied 4.18% and bringing 2022 returns to -10.73%. BABA has recovered more than 40% from 52 week lows from in late October when the stock bottomed out at around $60 per share.

Other internet companies followed suit with Tencent (US:TCEHY) 3.9% stronger, Netease (US:NTES) 2.88% higher, Baidu (US:BIDU) rising 4.36%, and Pinduoduo (US:PDD) gaining 1.39%.

Casino operators Melco Resorts (US:MLCO), Las Vegas Sands (US:LVS) and Wynn Resorts (US:WYNN) rallied 8.06, 4.17% and 4.47% respectively on their exposure to China’s Macau gaming district. Over the last few days, HK listed casino stocks have seen explosive returns with MGM China (HK:2282), and Wynn Macau (HK:1128) rising more than 90%.

Fast food restaurant chain Yum China (US:YUMC) rose 2.12% on the news, while logistics sector company ZTO Express (US:ZTO) finished 1.59% higher.

Analyst Simon Cheung from Goldman Sachs Equity Research told investors that he believes the impact on the inbound travel relaxation will likely be minimal to domestic tourism as there were only 145 million inbound tourists in 2019 compared to 6 billion domestic resident tourists.

Cheung believes outbound travel will be more important to sectors and companies with overseas exposures.

Stocks that Goldman Sachs thinks will benefit from the phase 2 and 3 of China’s recovery included: China Southern Airlines (HK:1055), Trip.com (US:TCOM), Songcheng (CN:300144), China Eastern Airlines (HK:670), Air China (HK:753), Shanghai International Airport (CN:600009), Macau casinos and HK Landlords.

This article originally appeared on Fintel

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