David Roche on the Covid epidemic in China hitting growth and markets

China has tightened Covid-19 measures to combat an increase in daily cases – a move that could dampen the country’s economic growth and hit its stock markets, seasoned strategist David Roche said.

Investor sentiment towards Chinese stocks has been dampened by Beijing’s regulatory crackdown on areas such as tech and after-school tutoring.

“The markets have gotten into the thinking that Covid is very… bad, but the economic recovery (is) removing blockages, removing social restrictions – that’s sort of the global recipe right now,” Roche, chairman and global strategist at Independent Strategy, “Street Signs Asia” told CNBC on Tuesday.

“Well, this is really not the global recipe in China for good reasons, and therefore the markets have to accept the fact that there are economic costs not only in China, but in the world as a result,” he said. he added.

The country’s National Health Commission on Monday reported 143 new cases of Covid in mainland China – the highest number of daily infections since January, according to Reuters. Chinese state media attributed the latest resurgence of infections to the highly transmissible delta variant.

Chinese authorities last week ordered mass tests in the city of Wuhan – where the coronavirus was first detected – and imposed widespread movement restrictions in major cities, including Beijing.

Some economists have raised concerns about China’s ‘zero tolerance’ approach to Covid, which refers to the country’s aggressive crackdown on any surge in Covid cases. The approach, which includes strict lockdowns and mass testing, helped China bring previous outbreaks under control before the latest resurgence.

But the delta variant is more contagious and could be harder to contain – and that could hurt China’s economic recovery, economists have warned.

“If closures and immunization advances do not allow local economies to reopen by mid-August or early September, we will have to revise our GDP forecast to 8.8% for 2021,” wrote economists at Australian bank ANZ in a Tuesday report.

Any disruption to the Chinese economy could affect global economic growth, Roche said.

The strategist explained that wider lockdowns across China could disrupt global supply chains – many of which are located in the country.

This could affect international trade, raise the costs of some products and raise inflation expectations around the world, he added.

Roche expects China’s year-on-year growth in the third quarter to slow to between 2% and 3% from the 7.9% expansion in the second quarter.

In the longer term, China’s economic growth will be around 5 to 6%, according to Roche.

“I think China is emerging from its great history of recovering from Covid, which is of course ahead of the world … and is now converging with a long-term growth trajectory which is well, far below what people have become accustomed to China, ”he said.