Shanghai Reopens, How Do Markets React?
Shanghai, the financial heart of China, has formally ended its harsh two-month-long Covid lockdown in the first seconds of summer. The city of 25 million residents welcomes the end of isolation with fireworks, but the question keeps lingering, how long will it take for its economy to recover. And more importantly, how will the global markets react to the news?
Zero-Covid Policy
The largest city in China was closed since the beginning of April after it appeared at the epicenter of the Omicron variant outbreak. The authorities in Shanghai took a political zero-Covid decision to contain the virus at all costs.
A total lockdown included putting millions of people under house arrest, separating children from parents, shutting down the economy and leaving citizens with food shortages. Every sector from consumer spending to manufacturing slowed down, leading Shanghai to lose its economic shine. Numerous investors left the city, which is the second biggest contributor to China’s economic growth.
A zero-covid strategy led the country’s economy down sharply and increased the rate of unemployment by more than 6% in April. Shanghai’s foreign-currency trades slumped 30% from March, industrial export deliveries fell 57%in April. Foreign capital has been flowing out of China at an unprecedented level in May. According to a survey by the American Chamber of Commerce, a majority of US companies have frozen their plans to invest in China this year.
According to local economists, Shanghai’s lockdown may cost around 4% of China’s national Gross Domestic Product (GDP), which was around $17.7 trillion back in 2021.
Markets Hesitant
Although China’s financial center is back from its isolation, the situation in the financial markets did not radiate a lot of optimism.
Despite yesterday’s initial stock price rise in Asia and Europe, Chinese stock markets pulled back on the first day of summer. The major indexes like Dow Jones Industrial Average, S&P500, and tech-heavy Nasdaq accordingly plunged as concerns mounted about the health of the economy and further economic growth.
The general sentiment across cryptocurrency markets remained cautious today, marking the slight market capitalization decline (1.63%) back to $1.28 trillion after yesterday’s optimism when the leading bitcoin climbed the most in two weeks and settled above the $30,000 mark.
