ASIA ─ Asian market has always been a form of diversification away from too much western market exposure ─ especially that of the US and the European Markets. Furthermore, in both institutional and retail portfolios, the Asian market, particularly its emerging basket, had provided an exceptional return throughout the last couple of decades leading to 2020, when a black swan event in the form of COVID-19 pandemic began in the continent.

In particular, the biggest economy in the region and the second biggest economy in the world, China has enjoyed an astronomical four decades of prosperous growth since it launched its “Opening-up policy” in 1978. For the first time in its history, the “Sleeping Giant” has awoken and started a nationwide expansion of its private and rural enterprises towards its goal of unprecedented economic development.

China Finally Eases Quarantine Measures

Early this week, Asia’s largest economy announced that it is finally easing up its quarantine measures significantly. Inbound travels would now only require ten days of quarantine instead of the previous three-week quarantine period imposed on all incoming travels towards the major cities and provinces affected by the outbreak.

The announcement came as both Shanghai and Beijing have reported a slowing down of COVID-19 cases and therefore appear to be containing the outbreak. During the renewed outbreak late last year leading up to this year, the imposed lockdowns on retail and institutional businesses have caused a global supply chain crisis as exports from the hit provinces have gradually decreased in volume and efficiency. Thus, the good news also lightens the burden on the global supply chain.

Asian Stocks Bounced Back and Rallied

The announcement fueled optimism in the Chinese market as well as the Asian market as a whole. Asian Indexes rallied with the announcement. In addition, on Monday, 27th of June, China’s central bank, the People’s Bank of China (PBC), pledged to support Beijing’s economy through financial assistance packages to numerous industries to revitalize the dire economic situation in the country.

Among the Asian indexes that rallied following the announcement are Shanghai, Manila, Bangkok, Mumbai, Taipei, Hong Kong, Tokyo, and Seoul.

However, experts forecast that the PCB will follow western economies, be it to a lesser degree, in increasing its interest rate amidst the rising inflation. For instance, according to Li Changmin, an analyst at Snowball Wealth, “This relaxation sends the signal that the [Chinese] economy comes first. It is a sign of the importance of the economy at this point.” Therefore, if the inflation result showed to be much higher than anticipated, PCB will have to respond by increasing interest rates to taper off the negative effect it will have on the economy.

Meanwhile, on easing restrictions, Huang Yanzhong of the Council on Foreign Relations (CFR), an American think tank specializing in US foreign policy and international relations, pinpointed the CFR’s reservation on easing quarantine measures in major cities and provinces in China. He said, “It’s not surprising that China has managed to return to so-called zero, after all the huge effort it’s made.”

He continued, “that doesn’t mean it can claim a thorough and durable victory because it didn’t eradicate the virus. Unless they [Chinese Government] thoroughly fence off Beijing and Shanghai, the virus could sneak in anytime.”