THIS MATERIAL IS A MARKETING COMMUNICATION.
The Latest on COVID in China
Swift change from zero-COVID policy
In this write, we access recent update on COVID infection in China, recent evidence on case load, bordering opening timelines as well as our expectations on path to economy normalization.
Key takeaway –
- We believe China can open up earlier than what market expects. It is possible that economy can achieve path to normalization from February 2023 onwards, much ahead of expectations of middle of 2023.
- Early evidence suggests that COVID-19 cases in larger cities have peaked. Rural areas might peak around Lunar New Year, in our view.
- While we don’t have fatality data, given shorter recovery period as well as milder than before symptoms for newer Omicron variants, we believe actually fatality could be lower than before.
Pivot away from zero COVID policy – may have led to huge increase in COVID cases in December 2022
China pivoted from its stringent zero-COVID policy in early December 2022, with easing controls on lockdowns and frequent mass testing. In addition, COVID-19 infection is now downgraded to Class B infectious disease. December saw very high case count load. Scrapping lockdowns as well as mass testing while cases still going up would have led to huge increase in COVID cases in December, in our view. With local governments no longer conducting mass testing, according to Bloomberg news – there might be 37 mln infections on one day (20 December 2022) and as many as 248 mln people or 18% of the population likely contracted COVID in first 20 days of December. (Source: Bloomberg News, as of 23 December 2022).
When will COVID peak – While jury is still out, we try and evaluate this from early evidences. Government official commentary so far suggests that larger cities have peaked. As an example, according to Wu Zunyou, an epidemiologist with the Chinese Centre for Disease Control and Prevention, COVID-19 cases in Beijing, Tianjin, Hebei province, Chengdu and Chongqing were estimated to have passed their peak. Similarly, according to The Guangzhou Health Commission - the number of patients visiting fever clinics had started to decrease from December 23, going down from 60,000 a day at the height of the wave to 19,000. Rural cases might not have peaked yet. While, the peak in rural areas might have not reached yet. The lunar New Year travel rush might bring forward the same. Mobility data (as of 27 December 2022) at National level is improving at the margin. We are seeing rebound of mobility in areas like Beijing, Guangdong and Chongqing. Shanghai mobility was still subdued until 26 December 2022.
Medical capacity ramping up rapidly: As of 25 December 2022, total ICU bed count in China was 185k, per NHC (vs. 138k as of 9 December 2022). Overall on a country side basis, ICU occupation rate has been hovering at around only 50% and bed occupation rate in Class II and above hospitals was ~60%, although medical resource of some provinces hit hardest by COVID are still nearing capacity. Key unknowns and risks include 1) how often the reinfection occurs, 2) how severe they are compared with initial infections and 3) what their long-term health effects are. In a study led by Peking University, researchers examined 6.6 million cases from around the world and found the average reinfection rate of all pre-Omicron variants was around 2 per cent.
Border opening up from January 8 – this will be the last hurdle for full reopening since COVID controls were first relaxed in mid-November. With COVID being downgraded to a “Class B” infectious disease, inbound travelers will only need to present a negative pre-departure COVID test, with neither tests nor quarantine on arrival. Issuance of visas for foreigners and business/tourism travel permits to Hong Kong will also resume, while international flights and outbound tourism will be gradually revived.
How would this impact consumption – For cities that are estimated to have passed COVID infection peak, we see consumption recovery across different categories. For example, table turn of restaurants in tier 1 cities started to rebound quickly driven by pent-up dine-out demands by those who have recovered from COVID infections. Apparel and discretionary category sales remained subdued potentially more a result of low consumption confidence amid a weak macro situation. Travel related spending also experienced encouraging signs of improvement. According to Tongcheng e-Long, overall domestic flight booking increased by 2% compared to same period in 2020 (pre-COVID) and hotel booking +32% compared to same period in 2020. Domestic duty free consumption recovered sequentially. The average hotel occupancy rate in Sanya reached 76.2% on 1-Jan with some popular high-end hotels seeing nearly full occupancy, according to Citi Research. We expect a strong consumption rebounds for the upcoming Chinese New Year holiday as majority of the large cities in China have passed COVID infection peak and mobility resumes.
Market impact: The drop of “Zero COVID” since December has clearly signaled that the government will prioritize economic recovery over other agenda. Drop of “Zero COVID” policy is the single most effective policy stimulus to China economy. The shorter the disruption impact, the bigger the stimulus effect we will see on GDP this year. Considering the current infection rate, we could see most regions’ cases peak off after Chinese New Year (while it is even earlier for high tier cities which have more impact on GDP). This will have a much milder impact on overall economic activities as it’s a low season for most manufacturing/economic activities during the festive period.
Staying Ahead with Mirae Asset’s Latest Insights
Disclaimer & Information for Investors
No distribution, solicitation or advice: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service.
The views and information discussed or referred in this document are as of the date of publication. Certain of the statements contained in this document are statements of future expectations and other forward-looking statements. Views, opinions and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance or events may differ materially from those in such statements. In addition, the opinions expressed may differ from those of other Mirae Asset Global Investments’ investment professionals.
Investment involves risk: Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the Fund will generate a return and there may be circumstances where no return is generated or the amount invested is lost. It may not be suitable for persons unfamiliar with the underlying securities or who are unwilling or unable to bear the risk of loss and ownership of such investment. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the Fund and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Sources: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of Mirae Asset Global Investments (“MAGI”) are reliable, but we make no representation as to their accuracy or completeness. We accept no liability for a loss arising from the use of this document.
Products, services and information may not be available in your jurisdiction and may be offered by affiliates, subsidiaries and/or distributors of MAGI as stipulated by local laws and regulations. Please consult with your professional adviser for further information on the availability of products and services within your jurisdiction. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Information for EU investors pursuant to Regulation (EU) 2019/1156: This document is a marketing communication and is intended for Professional Investors only. A Prospectus is available for the Mirae Asset Global Discovery Fund (the “Company”) a société d'investissement à capital variable (SICAV) domiciled in Luxembourg structured as an umbrella with a number of sub-funds. Key Investor Information Documents (“KIIDs”) are available for each share class of each of the sub-funds of the Company.
The Company’s Prospectus and the KIIDs can be obtained from www.am.miraeasset.eu/fund-literature/ . The Prospectus is available in English, French, German, and Danish, while the KIIDs are available in one of the official languages of each of the EU Member States into which each sub-fund has been notified for marketing under the Directive 2009/65/EC (the “UCITS Directive”). Please refer to the Prospectus and the KIID before making any final investment decisions.
A summary of investor rights is available in English from www.am.miraeasset.eu/investor-rights-summary/.
The sub-funds of the Company are currently notified for marketing into a number of EU Member States under the UCITS Directive. FundRock Management Company can terminate such notifications for any share class and/or sub-fund of the Company at any time using the process contained in Article 93a of the UCITS Directive.
Hong Kong: This document is intended for Hong Kong investors. Before making any investment decision to invest in the Fund, Investors should read the Fund’s Prospectus and the information for Hong Kong investors (of applicable) of the Fund for details and the risk factors. The individual and Mirae Asset Global Investments (Hong Kong) Limited may hold the individual securities mentioned. This document is issued by Mirae Asset Global Investments (HK) Limited and has not been reviewed by the Securities and Futures Commission.
Copyright 2023. All rights reserved. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of Mirae Asset Global Investments (Hong Kong) Limited.