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While many investors are optimistic about the Chinese government moving away from its strict zero-COVID policy, Barclays believes that the impact of the country’s reopening will likely have only a relatively small impact on US stocks (SPY) (SP500).
“China’s abrupt shift from its zero-COVID policy is a potential tailwind for global growth,” the firm said in a note to clients. “However, our analysis finds that the implications for US stocks overall are fairly minimal.”
The financial institution identified two key reasons why China’s reopening will be less than many investors expect. First, there is very little direct exposure to China in terms of S&P 500 revenue. According to Barclays’ estimate, this figure is around 2%.
Second, regarding valuations, the institution believes that US stock prices tend to be noticeably less reactive to “China reopening” headlines compared to their European counterparts.
“While the reopening of China is certainly a turning point, there remain reasons to be cautious,” the firm concluded.
Even if Barclays is right about the impact China’s reopening could have on US stocks in general, companies inside China could still benefit from the easing of restrictions. Popular exchange-traded funds offering exposure to the Chinese economy: (NASDAQ:MCHI), (NYSEARCA: KWEB), (NYSEARCA: FXI), (ASHR), (GXC), (NYSEARCA:CQQQ), (CXSE), (KBA), (CNYA), (YINN), (CHIQ), (PGJ), (CWEB) and (RAYC).
In China investment news, AllianceBernstein highlighted the upside potential China offers as the nation opens up after a three-year COVID-19 lockdown.
