Chinese yuan crosses 7, stocks rally on reopening hopes

By Ambar Warrick 

Investing.com– The Chinese yuan strengthened past key levels against the dollar, while local stocks rallied sharply on Monday as more cities scaled back anti-COVID measures, drumming up hopes for a broader reversal of the country’s strict zero-COVID policy. 

The jumped 0.7% to 6.9756 against the dollar, coming below the 7 mark for the first time since mid-September. The also surged 0.7% to 6.9672, its strongest level in 2-½ months.  

Several Chinese cities, including economic hubs Beijing and Shanghai, over the weekend, amid growing public ire towards COVID-related restrictions. 

A Reuters report also suggested that China is considering a nationwide pullback of COVID restrictions, citing slowing economic growth and stronger vaccination numbers. 

The news drove up hopes that an easing of restrictions will help spur a recovery in the Chinese economy, which was driven close to contraction territory by continued COVID-linked disruptions.

Data on Monday showed that contracted for a third consecutive month in November. 

Still, China’s bluechip index jumped 1.6%, while the index rallied 1.4% to its highest level since mid-September. Hong Kong stocks logged even stronger gains, with the index up 3.6% to a 2-½ month high.

The Hang Seng has now confirmed a bull market after rallying more than 20% from a 13-year low hit in October. Hong Kong had begun scaling back anti-COVID measures slightly ahead of China, given that the city had a much smaller infection rate.

But while Chinese cities are relaxing some anti-COVID measures, the country still faces a record-high daily increase in infections- a trend that could delay a full reopening.

Analysts warned that rising cases could spur near-term volatility in markets, especially if the government signals a delay in its reopening plans. 

“As China reopens, cases will rise, confusion will grow, and market will be volatile. That said, both on/offshore indices are making a historic comeback at a dizzying speed, and we are staying the course,” Hao Hong, Chief Economist at Grow Investment Group wrote in a note.

Hong was also among the first analysts to call for a potential Chinese reopening. He forecast further weakness in the U.S. dollar, which could benefit Chinese markets in the coming years. 

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