What happened 

Despite Chinese leaders insisting their zero-COVID policy will stay in place, investors are betting that the economy opens up and improves sometime in the near future. Protests across the country have been seen over the past week, which could force officials in China to take measures to loosen restrictions, some of which we're already seeing. 

Gains have been widespread across Chinese stocks, but there are some big movers. Social media network Weibo (WB 0.22%) jumped as much as 11.9%; travel firm Atour Lifestyle Holdings (ATAT 0.57%) was up 14.5%; educator Gaotu Techedu (GOTU 3.45%) jumped 17.7%; and Full Truck Alliance (YMM 0.91%) rose 12%. The stocks were up 11.1%, 11.4%, 15%, and 8.6% respectively at 10:50 a.m. ET. 

So what 

Investment research firm Alpine Macro said China's zero-COVID policy "has passed the point of no return" as protests grow and citizens saw World Cup soccer games attended by tens of thousands of fans with no masks. What's not clear is whether China will make a policy change by choice or if it will be forced to by increasing protests.

As a sign of progress, China's national health authority said it would increase vaccinations for elderly citizens. This is one of the most effective ways to reduce infections and deaths that would likely increase if the economy opens more fully. It may take months for any change in the zero-COVID policy to take place, but the market is forward looking, so the reaction is coming in anticipation of any change. 

It's not clear what impact China's zero-COVID policy has had on the global economy, but it's possible opening up would lead to a boost in economic activity for both Chinese companies and around the world. 

Now what 

Keep in mind that today's move is pure speculation, and China may not actually change its zero-COVID policy in a meaningful way. But if it does, the upside could be large for these companies. You can see in the chart that stocks are down sharply from 2020, and earnings have suffered as well. 

WB Chart

WB data by YCharts

There would likely be a positive impact on stocks across China if people are allowed to travel and interact more freely. But there's downside risk as well. Protests could harden the government's position and deter foreigners from visiting or investing in China. So speculation is moving one way today, but it could change tomorrow. 

I do think China's zero-COVID policy will need to change in the next year, but the pace and impact is nearly impossible to predict. Investors should focus on finding great companies trading at a value that would get a tailwind from ending the zero-COVID policy, not stocks dependent on ending the policy. That's what will keep me out of these Chinese stocks today, despite the growing likelihood that economic activity could pick up in China soon.