Peak hour! Crowds! Long queues to get into restaurants!
It’s funny how things we might previously consider a nuisance become pleasant scenes of normalcy when you’re in pandemic recovery mode. And so it was that mundane signs of normal life in China drove consumer-focused stocks higher today.
Chinese consumer names, especially with a tech bent, were the top performers in Asia today. In Hong Kong, the Hang Seng Tech index jumped 4.6%, with half of those gains occurring in the last 30 minutes of trading.
Catering service resumed at midnight at restaurants in Beijing and many employees returned to the office on Monday morning. With the world times Pointing to lines and full tables at a popular Beijing crawfish restaurant and photo essaying the rush to work, investors cheered on Monday as life returned to something resembling normal in the Chinese capital. Coupled with last week’s easing of Shanghai’s two-month lockdown, it’s clear Chinese officials believe the worst of this spring’s Covid outbreak is over.
Chinese electric vehicle makers, which saw sales stall during the lockdown, led the charge for tech consumers. Hybrid SUV maker Li Auto (LI) and HK:2015 posted the biggest gains, up 12.4% in Hong Kong, which bodes well for a good day on Wall Street, with BYD Electronic HK:0285 up 9.6% and electric sedan maker XPeng (XPEV) HK:9868 up 8.3%.
Cities such as Shanghai, Shenzhen and Guangzhou recently announced subsidies of up to C¥10,000 (US$1,500) for the purchase of new energy vehicles, normally on the condition of disposing of an existing vehicle. Nomura estimates that 1 million cars were not sold in the second quarter due to the lockdowns, sales it now thinks automakers will be able to resume in the second half of the year. On top of that, another 500,000 cars could sell, with demand driven from next year by subsidies, the investment bank’s plans, bringing total passenger vehicle sales to 23.0 million in 2022. That would make 2022 the strongest year for car sales since pre-pandemic 2018.
BYD Electronic is a spin-off of car manufacturer BYD Co. (BYDDF) and HK:1211. The electronics subsidiary manufactures car and cockpit parts, automotive intelligence systems, as well as “smart” networked consumer electronics. Parent BYD added 5.7% on Monday.
Gains in tech names sent Hong Kong’s broader benchmark, the Hang Seng Index, up 2.7%. Grocery delivery app Meituan HK:3690 was the second-best performer for the overall market, up 9.9%, behind only contract drug R&D facility WuXi Biologics (WXIBF) and HK :2269, which gained 10.4%.
Meituan reported quarterly sales last week that, with a 25% year-on-year increase, beat consensus estimates by two percentage points. Its net loss was down 8%, even better than estimates. Grocery delivery was in high demand during lockdowns in as many as 45 cities across China, affecting around 373 million people at their peak. But Meituan’s ability to get these goods into the hands of consumers has been significantly affected both by the lack of vaccinated couriers and by the tight restrictions that have hampered mobility in cities.
Consumer companies like sportswear maker Anta Sports (ANPDF) and HK:2020, up 8.1%, China Resources Beer Brewery (CRHKF) and HK:0291, up 7.9%, and the hotpot restaurant chain also posted strong gains on Monday. Haidilao International Holding (HDALF) and HK:6862, up 7.4%.
Although Macau has not been directly affected by the easing of mainland China lockdowns, its casino business is expected to feel a follow-on effect. Sands China (SCHYF) and HK:1928 reflected this optimism with a 6.3% gain on Monday.
Anta’s sporting goods rival Li Ning (LNNGF) and HK:2331, up 5.6%, also saw a notable gain. The “normal names” leading a technological advance in China were less pronounced, with Alibaba Group Holding (BABA) and HK:9988, up 5.0%, and e-commerce competitor JD.com (JD) and HK: 9618, just behind with a 4.7% lead. Their businesses may still thrive during shutdowns, so their rebound isn’t as dramatic.
Mainland markets, with a wider range of listings including many heavy industries, rose 1.9% on Monday, in the form of the CSI 300 index of largest listings in Shanghai and Shenzhen.
Markets in mainland China, Hong Kong and Taiwan were closed on Friday for the Dragon Boat Festival, a highlight of early summer. There were dragon boat races in Guangzhou for the first time in three years.
Mainland China on Monday reported 171 new Covid cases in the past 24 hours, including just eight new cases in Shanghai and five in Beijing. Although there is normally a lull in the numbers over the weekend, it is the first time that cases have been in the single digits in China’s two largest cities since Covid began to soar in march.
Beijing will, like Shanghai, require citizens to present a negative PCR test within the last 72 hours to enter public spaces or take public transport. But normal work will resume and traffic bans have been lifted in much of the city, according to the Beijing Daily. Primary and secondary schools will resume in-person classes in Beijing from June 13 if all goes well.
Restaurants are welcoming customers for the first time since switching to take-out orders in early May. There are still restrictions in some parts of the city, with restaurants unable to open in Fengtai district and parts of Changping.
Nationwide, the number of tourist trips during the three-day Dragon Boat Festival weekend fell 10.7 percent, according to the Ministry of Culture and Tourism. China, although the site of the original outbreak in Wuhan, was one of the first nations to see life return to something close to normal. Last year’s comparisons therefore turn out to be harsh.
“Normal life” was turned upside down by the Covid-19 outbreaks this spring. Tourism revenue for the three-day weekend fell 12.2% compared to the Dragon Boat weekend last year. The movie theater box office fell 61.7% and new home sales fell 55.9%.
The Chinese authorities have announced a series of measures aimed at reviving the economy. With a zero-Covid strategy still in place, however, the country remains susceptible to a return to lockdowns if Covid raises its head again.
Receive an email alert each time I write an article for Real Money. Click “+Follow” next to my signature for this article.