Here’s What Wall Street Is Saying About Economic Risk

By | November 30, 2022

Rising distress over China’s COVID-19 lockdowns and rare anti-government protests are weighing on the broader stock market rally.

Global markets stabilized slightly on Tuesday after a more than 500-point loss in the Dow Jones Industrial Average on Monday as protests in China spread. That it didn’t help market sentiment is a sign that big US companies could be dragged into the controversial health-turned-politics situation.

On Tuesday, Disney (DIS) Shanghai closed its gates just four days after reopening them. The company said in a statement that the closures were to comply with “the pandemic prevention and control requirement”.

On Monday, Bloomberg reported that Apple (AAPL) could run a shortfall of six million units in iPhones this year amid manufacturing pressures at a key Foxconn factory in China.

“With China’s head-scratching zero Covid policy now reaching a tipping point and protests across the country, Apple is essentially caught in the crossfire approaching the all-important Christmas period,” opined Dan Ives, technology analyst from Wedbush.

Here’s what top Wall Street strategists are saying about the controversial situation.

Hui Shan of Goldman Sachs

“Local governments struggle to quickly balance controlling the spread of the virus and complying with the ’20 measures’ that require a more targeted approach. The central government may soon need to choose between more lockdowns and more Covid outbreaks. The current situation imposes further plus downside risk to our below-consensus fourth-quarter GDP forecast. Our 30% subjective probability of reopening before the second quarter of next year includes some chance of a disorderly forced exit.”

Citi’s Xiangrong Yu

“The Covid situation in China may have raised concerns again. The direction of reopening is very clear, in our opinion, and we don’t think the government will double down on pandemic control measures. Whether China will go into a forced reopening will depend on the Covid situation, but the government still has room for manoeuvre, in our view. We maintain our base case that the reopening will gain strength after the [National People’s Congress on March 5] next year and we see a greater risk of an accelerated reopening”.

BEIJING, CHINA - NOVEMBER 29: Epidemic control workers wear PPE to prevent the spread of COVID-19 while resting on a park bench in an area where communities are on lockdown on November 29, 2022 in Beijing, China.  In recent days, China has recorded its highest number of daily cases of COVID-19 since the beginning of the pandemic, as authorities adhere to their strict zero-tolerance approach to containing the virus with lockdowns, mandatory testing, mask mandates and quarantines as they fight. .  to contain outbreaks.  In an effort to try to control the rise in cases, the government last week closed most shops and restaurants for indoor dining, switched schools to online studies and told people to work from home, among other measures.  (Photo by Kevin Frayer/Getty Images)

Epidemic control workers wear PPE to prevent the spread of COVID-19 while resting on a park bench in an area where communities are in lockdown on November 29, 2022 in Beijing, China. (Photo by Kevin Frayer/Getty Images)

Michael Hirson of 22V Research

β€œThe possibility of a chaotic pivot scenario this winter is increasing as the population, as well as local governments, are clearly reaching exhaustion in maintaining Covid-zero policies. local authorities may conclude that the political risk of maintaining tight restrictions outweighs the risks of letting outbreaks spread. Leadership may be forced to accept this outcome, at least in some locations, in the face of local depletion and Omicron’s high transmissibility. A chaotic pivot is likely to be highly damaging to the economy – possibly worse than zero-Covid, at least in the short term.”

Hirson added that a chaotic pivot would be “Chinese officials essentially abandoning – by choice or by force – hope of stopping a surge in cases through testing and lockdowns. But that doesn’t mean China ‘goes flat’: local governments will need to maintain tight restrictions in areas at risk of seeing the hospital system overwhelmed. In addition, a chaotic pivot scenario would also hurt the economy through increased voluntary restrictions on the behavior of families concerned about infection. Simply put, while a chaotic pivot could shorten the timeline for China’s eventual reopening, the overall economic and social risks would be high.”

Brian Sozzi is an editor-at-large and anchor at Yahoo FinanceπŸ‡§πŸ‡· Follow Sozzi on Twitter @BrianSozzi is at LinkedInπŸ‡§πŸ‡·

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