David Roche on China Covid outbreak hitting progress, markets

Medical staff are working on the sixth round of the Covid-19 test since the end of July in Nanjing, east China’s Jiangsu Province, on Sunday, August 8, 2021.

Feature China | Barcroft Media | Getty Images

China has tightened Covid-19 measures to combat a surge in daily cases – a move that could curb the country’s economic growth and hurt its stock markets, veteran strategist David Roche said.

Investor sentiment towards Chinese stocks was boosted by Beijing’s regulatory crackdown on sectors such as technology and Tutoring after school.

“The markets have gotten into the mindset that Covid is very … bad, but the economic recovery is picking up locks, removing social restrictions – this is something of the world recipe right now,” said Roche, President and Global Strategist, Independent Strategy. said CNBCs “Road signs Asia” on Tuesday.

“Well, it is not the world recipe in China for good reasons, and so markets have to accept that it has an economic cost not just within China but globally,” he added.

I think China is about to end its great recovery story from Covid …

David Roche

President and Global Strategist, Independent Strategy

The country’s National Health Commission reported 143 new Covid cases in mainland China on Monday – the highest number of daily infections since January, according to Reuters. Attributed to Chinese State Media the recent resurgence of infections on the highly transmissible Delta variant.

Chinese authorities ruled last week Mass tests in Wuhan city – where the coronavirus was first discovered – and imposed widespread restrictions on movement 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 relapses in Covid cases. The approach, which includes rigorous lockdowns and mass testing, helped China keep previous outbreaks under control before the recent resurgence.

Read more about China from CNBC Pro

But the Delta variant is more contagious and could be more difficult to contain – and that could hurt China’s economic recovery, economists warn.

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

China effect on the world economy

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

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

This could affect international trade, increase the cost of some goods, and raise inflation expectations around the world, he added.

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

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

“I think China is about to end its great recovery story from Covid, which of course is ahead of the world … and is now converging on a long-term growth path that is much, much lower than what people are used to after China,” said he.