Is the China Reopening Trade for Real?

Hints are emerging that China may begin moving away from ‘zero-Covid’ approach. That would mark a sea change for consumer shares.

By guest author Jacky Wong from the Wall Street Journal

Is China finally opening up? The mere whisper of a plan to do so could be good news for companies relying on Chinese consumers and travelers. Such whispers are now beginning to percolate out of the Middle Kingdom, which has remained essentially closed to the outside world for the past two years.

That is undeniably bullish news for China’s long-suffering consumer stocks. But the road to reopening is likely to be a rocky one. Buying in now on the cheap might pay dividends over the long run, but investors had better have a strong stomach for volatility.

China may explore experimental opening measures in some cities as soon as this summer, even though comprehensive Covid-19 controls likely won’t go away until the spring of 2023, The Wall Street Journal reported Wednesday. That would be a significant shift from the country’s longstanding “zero-Covid” approach. Many countries that had tight border controls early on in the pandemic have now moved toward living with the virus—especially since the advent of the highly infectious Omicron variant. The variant of Covid-19 has breached China’s defenses in recent months, but strict measures have managed to keep case numbers low.

Shares of travel-related stocks rose on the news of a potential reopening. Shares of Nasdaq-listed Chinese online travel company, formerly known as, jumped 8% Wednesday. Airline and restaurant stocks gained in Hong Kong on Thursday. Shares of Macau casino operators, which rely on visitors from mainland China, have also risen.

China’s harsh control measures helped the country’s economy—particularly manufacturing—bounce back quickly in 2020. But the cost has been a persistent, deep drag on consumption and services growth: The flare-ups of the past few months and successive rounds of local restrictions to quash outbreaks have hurt domestic travel, which had begun to recover in late 2020 before the emergence of more infectious variants.

The number of passengers on Chinese domestic flights in the second half of last year fell 28% year on year, leaving volumes 35% below 2019 levels. International flights have been hit far worse. Passenger volumes are 98% down from pre-Covid-19 levels: unsurprisingly given China’s borders remain almost entirely closed. Retail sales in general have lagged behind other pillars of the recovery.

So a shift away from zero-Covid could give a big boost to Chinese consumer stocks. The reopening trade has been doing well in the U.S.—stocks such as Booking Holdings and Marriott International were hitting record highs before the recent selloff triggered by Russia’s invasion of Ukraine. And even with the selloff those stocks are still trading higher than pre-pandemic levels.


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On the other hand, Chinese travel and retail stocks are still getting very little love. Shares of hot-pot chain Haidilao have almost halved since the end of 2019. Air China stock has lost 20 % over the same period.

China’s reopening plan will likely be long and will face hiccups, given its low elderly vaccination rate and relatively frugal spending on medical infrastructure compared with more developed countries. And Chinese consumers, who have gotten used to very low case numbers, may also be deterred by sudden rises in the future.

But investors in Chinese travel and retail stocks may finally have something to look forward to.