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Investor sentiment towards Chinese stocks has been dampened by Beijing’s regulatory crackdown on areas such as tech and after-school tutoring.
“The markets have entered the mode of thinking that Covid is very… bad, but the economic recovery (is) removing blockages, removing social restrictions – that’s sort of the global recipe right now,” Roche, chairman and global strategist at Independent Strategy, “Street Signs Asia” told CNBC on Tuesday.
“Well, this is really not the global recipe in China for good reasons, and therefore the markets have to accept the fact that there are economic costs not only in China, but in the world as a result,” he said. he added.
Chinese authorities last week ordered mass tests in the city of Wuhan – where the coronavirus was first detected – and imposed widespread movement restrictions in major cities, including Beijing.
Some economists have raised concerns about China’s ‘zero tolerance’ approach to Covid, which refers to the country’s aggressive crackdown on any surge in Covid cases. The approach, which includes strict lockdowns and mass testing, helped China bring previous outbreaks under control before the latest resurgence.
“If closures and immunization progress do not allow local economies to reopen by mid-August or early September, we will have to revise our GDP forecast by 8.8% for 2021,” wrote the economists of Australian bank ANZ in a Tuesday report.
China’s effect on the global economy
The strategist explained that wider lockdowns across China could disrupt global supply chains – most of which are located in the country.
This could affect international trade, raise the costs of some products and raise inflation expectations around the world, he added.
In the longer term, China’s economic growth will be around 5 to 6%, according to Roche.
“I think China is emerging from its great history of recovering from Covid, which is of course ahead of the world… and is now converging with a long-term growth trajectory that is well, much lower than what people have become accustomed to China, ”he said.