What happened
Several Chinese stocks moved higher today as COVID-19 restrictions continued to ease in China and Hong Kong.
Shares of the Chinese electric car maker Nio (NIO -2.06%) traded close to 6% higher as of 10:54 a.m. ET today. Meanwhile, shares of the online content company Zhihu (ZH -4.62%) surged nearly 17%, and shares of the fintech Lufax Holding (LU) were up nearly 12%.
So what
All year, China's restrictive "zero-COVID" policies implemented by the Chinese government have really hurt China and Hong Kong's economies, as people have been locked down for long periods of time in order to prevent the spread of the virus.
Image source: Getty Images.
But now after violent protests erupted in parts of China in recent weeks, the government seems to be taking broader steps to ease those policies. The Chinese government has begun to ease up on lockdowns, reduce the frequency of testing, and allow some people with COVID-19 to quarantine inside their homes.
This morning, local media outlets reported that Hong Kong is contemplating removing its outdoor mask mandate and not requiring testing for people entering the country. Hong Kong's Hang Seng benchmark index jumped nearly 3.4% today.
Helen Qiao, chief Greater China economist at Bank of America Global Research, said in a recent research note that "Covid-19 policy adjustments, in our view, are more important than fiscal, monetary or even property policies at the moment. Because, the Covid-19 curbs are the most important constraints on the overall economy."
Qiao said that even if restrictions ease it still may take some time for citizens to gain the confidence to go out and get back to normal. However, the economist said that, when it comes to Hong Kong, investors need to monitor China and its reopening. Qiao added that she is expecting China's gross domestic product to snap back from -3% this year to 3% next year.
In other news, November data from the China Passenger Car Association (CPCA) showed that new energy vehicle (NEV) retail sales surged by more than 58% year over year in China to roughly 598,000 units. Other than September, that's the highest monthly unit sales seen all year, which bodes well for Nio, as the majority of sales were for battery electric vehicles.
NEVs in November also hit a more than 36% penetration rate, up significantly year over year. The NEV penetration rate was 56.5% and 32.1% among local brands and luxury brands, respectively, but only had a 5.2% penetration rate among joint venture brands.
Now what
Clearly, after a difficult year for Chinese stocks, the relaxing of COVID-19 restrictions could be a huge catalyst for the sector, which has already had some strong days in recent weeks.
However, I would expect these restrictions to ebb and flow in the sense that they might be relaxed and then put into place again for brief periods. Ultimately, though, it does seem like the Chinese government is moving toward a broader reopening.
Of this group, I think Nio could be a great stock to buy due to the growing adoption of electric vehicles in China. I am less interested in smaller names like Zhihu and Lufax, but they should benefit if the reopening continues.
