3 Chinese Stocks Moving On China's Covid-19 Restriction Rollback

Zinger Key Points
  • Some Chinese authorities have started to loosen COVID-19 restrictions.
  • Morgan Stanley sees the IShares MSCI China ETF up 15% over the next year.

Shares of several U.S.-listed Chinese companies are moving higher Monday after the country lifted some of its Covid-19 restrictions

Morgan Stanley says the IShares MSCI China ETF MCHI is set to jump nearly 15% over the next year as restrictions ease.

The China fund's top two holdings are Tencent Holding Ltd TCEHY and Alibaba Group Holding Ltd BABA.

See Also: Casino Stocks With Macau Exposure To Benefit From Covid Rule Changes

"Multiple positive developments alongside a clear path set towards reopening warrant an upgrade and index target increases for China," Morgan Stanley analysts wrote in a new note to clients on Monday. "We are at the beginning of a multi-quarter recovery in earnings revisions and valuations."

For the first time in almost two years, Morgan Stanley upgraded its outlook on Chinese names, per CNN. The news comes as Chinese authorities loosen Covid-19 restrictions following a series of nationwide protests over extreme lockdown measures.

More than 20 cities have reportedly lifted requirements for negative tests on public transportation including Beijing, Shanghai, Shenzhen, Wuhan and Chengdu.

Some residential locations are also allowing residents who have tested positive to quarantine at home instead of at centralized locations. 

The protests in China initially broke out following a deadly fire in Urumqi as protestors claimed it was caused by extreme lockdown measures that delayed rescue efforts.

"I feel like everyone’s hard work is paying off," a protestor in Beijing told CNN.

Tencent previously attributed declining payment volume growth in categories such as transportation, dining services and apparel to Covid-19 lockdowns in several cities. The company stands to benefit from increased consumer activity, which should be on the rise as Covid-19 restrictions are lifted.

Alibaba has also seen its financials weaken amid Covid-19 lockdowns that caused it to close stores and reduce operating hours. 

In the company's most recent quarterly report, Alibaba said it experienced approximately 23 daily temporary store closures on average in the third quarter. 

If China continues to lift Covid-19 restrictions, these and other companies stand to benefit as overall operating activity returns to normal.

Morgan Stanley raised its target for Hong Kong’s benchmark Hang Seng Index to 21,200 by the end of 2023.

See Also: Hang Seng Jumps As China Dials Down Zero-COVID Controls

TCEHY, BABA Price Action: At publication time, Tencent was up 2.98% at $39.02 and Alibaba was up 0.66% at $90.65, according to Benzinga Pro.

Photo: courtesy of Alibaba.

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