China Proves You Can’t Hide Forever From Covid

Shanghai, the crown jewel city of China, has largely escaped the SARS2 pandemic unscathed. Until now. Chinese travelers arriving to Italy and Taiwan are testing positive for Covid in large numbers. The U.S. is now requiring testing of all passengers from China.

By some estimates, at least half of Shanghai has tested positive for Covid, though deaths remain relatively low. After years of hiding out from Covid, Shanghai is a testament to the fact that you can run, but you cannot hide forever from the spliced-and-diced GMOd SARS2 virus. It doesn’t matter how long you’re masked, or how many shots you’ve had. SARS2 is nothing like SARS1 or its Middle Eastern relative, MERS.

The market is handling it well, though.

The Shanghai Composite of the 50 largest companies on the exchange closed 0.33% higher on Wednesday. The STAR-50, all tech companies, most of them newbies, was down by 0.7%. Just another day in Shanghai. Investors are so over Covid.

If the situation worsens, however, look for China to begin hoarding medication destined for export markets. They will also hoard personal protection equipment, namely masks, which are making a comeback in some schools across the country, with public school districts in Los Angeles, Boston and New York City all covering up temporarily for the first days back to school this month.

Whether this hoarding creates more supply chain bottlenecks is unknown, but barring a worsening situation in Shanghai, it is unlikely that this will lead to the same supply chain crises we saw in 2020-21.

China Covid is its First Omicron Wave

According to China’s Center for Disease Control, local Covid testing showed a prevalence of the easily spread but less deadly Omicron variants BA.5.2 and BF.7. They accounted for 97.5% of all local infections as per genomic sequencing. A few other known Omicron sublineages were also detected but in low percentages, according to the World Health Organization. The WHO said on Wednesday that no new variant has been reported in the Shanghai outbreak.

This isn’t the winter of 2020. Markets can at least rejoice in that today (even though the S&P 500 took a small nose dive this morning after the opening bell).

It is unclear what Shanghai doctors are using to treat Covid, though the Chinese government has approved imports of Paxlovid, the capsule formula made by PfizerPFE
to treat Covid patients.

Some reports suggest that in nearby cities, a healthcare kit comprising only masks, Covid tests, aspirin and traditional Chinese medicine were handed out to people.

Meanwhile, Europe said it would not follow in the Italian government’s footsteps in requiring mandatory Covid tests for Chinese arrivals. This will largely mute Italy’s efforts to contain yet another Covid wave this winter, totally contrary to what some in the Italian government did in the winter of 2020. In at least one province, “Hug an Asian Day” led to massive Covid infections of the first alpha variant, showing the world its first crowded hospitals in the West, with a 14% death rate recorded in Italy in early March 2020.

The director of the WHO, this time around, said that he understood the policies to test Chinese travelers before allowing them into the country. Tedros Ghebreyesus was always against travel restrictions, even in 2020.

There is some hope that if Shanghai and the surrounding economic and financial hubs take a beating from Covid, Xi Jinping will reinstate his Zero Covid policy. On the other hand, some people are willing to bet that the Chinese Communist Party will just throw helicopter money at the economy. Both options are plausible bets, but any stimulus coming from China is not expected to be what Wall Street hopes for out of Beijing.

China investors would be wise not to fall for news articles on social media showing hospitals overflowing with people. This is a common scene in many countries around the world when a population is hit with a contagion — could be Sars2, could be the flu, could be a natural disaster. China is also a master at faking these images to scare Western governments into doing the same, or risk a similar fate. Recall that only in China were people fainting from Covid left and right in 2020.

China investors will still have to deal with the growing geopolitical risks there, but the Shanghai outbreak should be considered an extension of the Zero Covid headwind. China will get through this. The market is already catching up to the U.S. after a bad few years due to the pandemic and trade war.