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It’s one of the wildcards for 2023 — China has loosened its zero-COVID policy, and if cases subside, there should be a meaningful boost to the world’s number-two economy.
Investors aren’t waiting. The KraneShares CSI China Internet ETF
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has surged 95% from its late October lows, for instance. But after China reopens, won’t price pressures get unleashed, causing havoc with the plans of central banks in the U.S. and Europe to cool their economies?
Economists at Morgan Stanley say those worries are misplaced. For one, China did not hand out stimulus checks like the U.S. did. “For the U.S., households received excess transfers during the pandemic that they were able to deploy as the economy reopened. This is not the case in China,” they say.
The other issue is that China doesn’t have the labor supply issue the U.S. does. “While we do anticipate that labor demand will pick up cyclically as the recovery gets underway, we do not foresee labor supply becoming a constraint that will mean significantly higher than trend wage growth,” they say.
But that’s just domestically. What about China bidding up commodity prices? Increased mobility will naturally lead to more demand for oil
CL.1,
but there’s a more subdued backdrop for industrial and construction activity, the Morgan Stanley team says. And China real estate and infrastructure spending are the key drivers for non-oil commodity demand and prices.
Finally, they say, supply-chain disruptions will ease meaningfully, at a time when global demand for goods is already softer.
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