For stock markets, a China factor could be the biggest ‘known unknown’ in 2023

The covid surge in China has also hit global stock markets and investors are concerned that covid-related disruption in world’s second biggest economy would also hurt demand for goods. 

“There are growing concerns that COVID related deaths in China are being under reported after China relaxed stringent restrictions under the Zero COVID policy. The threat of new variants looms for the globe as China gets engulfed by a fresh wave of COVID outbreak on reopening. How China reopening plays out is the biggest ‘known unknown’ in 2023,” IFA Global said in a note. 

As of Monday, China has officially reported 5,237 COVID-related deaths during the pandemic, a tiny fraction of its 1.4 billion population.

US State Department spokesperson Ned Price said on Monday the potential for the virus to mutate as it spreads in China was “a threat for people everywhere”.

“The toll of the virus is of concern to the rest of the world given the size of China’s GDP, given the size of China’s economy,” Price told a daily briefing at the State Department.

“It’s not only good for China to be in a stronger position vis-a-vis COVID but it’s good for the rest of the world as well,” Price said.

China reported its first COVID-related deaths in weeks on Monday amid rising doubts over whether the official count was capturing the full toll of a disease that is ripping through cities after the government relaxed strict anti-virus controls.

Global equity markets are already battling fears of a recession amid higher interest rates. Santosh Meena, Head of Research, Swastika Investmart, said: “While a recession is a fresh fear for international equity markets, higher interest rates are a major concern in the near term. In China, a rise in COVID instances is also creating some issues.” 

The World Bank has cut its China growth outlook for this year and next, citing the impact of the abrupt loosening of strict COVID-19 containment measures and persistent property sector weakness.

The Washington-based lender, in a report released on Tuesday, said it expected China’s economy to grow 2.7% in 2022, before recovering to 4.3% in 2023 as it reopens following the worst of the pandemic.

In September, the World Bank forecast China’s growth at 2.8% this year and 4.5% next year.

“China’s growth outlook is subject to significant risks, stemming from the uncertain trajectory of the pandemic, of how policies evolve in response to the COVID-19 situation, and the behavioral responses of households and businesses,” the bank said in its report.

(With Agency Inputs)