One of the major challenges for the global economy is China's coronavirus strategy. The country has stubbornly clung to a zero-COVID policy despite the virus becoming less dangerous and more effective treatments.
It's caused major damage to its own economy and also contributed to inflationary pressures as the country is an exporter of so many inputs and intermediary products.
There was increasing hope over the last few weeks as politicians in the country have been increasingly discussing the need to support the economy and find a better balance. With cases plunging due to lockdowns and growing recognition that the economy was suffering, the country finally decided to reopen.
Predictably, case counts shot up again. Rather than accepting this reality and focusing on vaccinating vulnerable populations, the country has decided to enact lockdowns in affected areas and also punish political leaders in these areas.
The message is clear: nothing has changed in regard to the country's coronavirus strategy. And, it's continuing to place more importance on zero COVID vs supporting the economy.
Chinese Stocks
What's interesting is that Chinese stocks rallied as the lockdowns were lifted but have held onto the bulk of their gains despite the reinstatement of lockdowns.
Ironically, many commodities and industrial stocks gave up all of their gains as it became evident that the Chinese economy is not close to returning to full capacity anytime soon.
We can see this with iron ore stocks like Vale
Investors shouldn't discount this type of relative strength, especially amid so much volatility and turmoil in the markets even if the fundamental driver of this relative strength is not clear. However, what is clear is that for the first time since late 2020, investors may find better opportunities and returns in Chinese stocks than in the U.S.
