by Rising fears of COVID-19 lockdowns in China and infrequent anti-government protests are weighing on the broader stock market rally.
Global markets stabilized slightly on Tuesday after the Dow Jones Industrial Average fell more than 500 points on Monday as protests spread in China. That market sentiment isn’t helping is a sign that big US companies are getting sucked into the contentious public health situation.
On Tuesday, Disney (DIS) Shanghai closed its doors just four days after reopening. The company said in a statement the closures should be “consistent with the needs of pandemic prevention and control.”
On Monday, Bloomberg reported that Apple (AAPL) could see a six-million-unit iPhone shortage this year amid production pressures at a key Foxconn plant in China.
“With China’s head-scratching zero-Covid policy now reaching a tipping point and protests raging nationwide, Apple is essentially caught in the crossfire heading into the all-important holiday season,” said Wedbush tech analyst Dan Ives.
Here’s what top Wall Street strategists are saying about the contentious situation.
Hui Shan from Goldman Sachs
“Local governments are struggling to get the spread of the virus under control quickly and to follow the ’20 Measures’ which mandate a more targeted approach. The central government may soon have to choose between more lockdowns and more Covid outbreaks. The current situation forces further downside risk to our below-consensus GDP forecast for the fourth quarter. Our 30% subjective probability of reopening before Q2 next year includes the possibility of a forced and disorderly exit.”
Xiangrong Yu by Citi
“The Covid situation in China may have raised concerns again. The direction of reopening is very clear in our view and we do not believe the government will double down on measures to combat the pandemic. Whether China initiates a forced reopening will depend on the Covid situation, but we believe the government still has ample room for maneuver [National People’s Congress on March 5] next year and see a higher risk of an accelerated reopening.”
Michael Hirson of 22V Research
“The possibility of a chaotic pivot scenario this winter is increasing as populations as well as local governments clearly reach exhaustion in upholding the zero Covid policy. If protests continue to grow or if the population becomes less compliant with Covid restrictions, local officials could conclude that the political risk of maintaining strict restrictions outweighs the risks of outbreaks spreading. The leadership may be forced to accept this outcome, at least in some places, given local exhaustion and Omicron’s high portability. A chaotic pivot is likely to be highly disruptive to the economy – possibly worse than zero-Covid, at least in the short term.
Hirson added that one chaotic pivot is that “Chinese authorities — willingly or by force — are essentially giving up hope of preventing a surge in cases through testing and lockdowns while maintaining tight restrictions in areas where the risk is that the hospital system is being overwhelmed. Furthermore, a chaotic pivot scenario would also hurt the economy as households fearful of infection increase voluntary behavioral restraints. Put simply, while a chaotic pivot could potentially shorten the timeline for an eventual reopening of China, the overall economic and social risks would be high.”
Brian Soci is a freelance editor and Anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.
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