Is there a market upside to China's Covid-19 lockdowns?

THE lockdown in Shanghai, accompanied by media accounts of food shortages and unreported deaths, are evoking painful recollections of January 2020 and the central city of Wuhan, where Covid-19 first broke out. For investors, the memory will also include the economic stimulus that China unleashed then to stave off a recession - as well as the bull market that ensued.

That may explain why China's main stock indexes have not sunk below their mid-March low, even as the number of Covid cases soared. Counterintuitively, since the initial outbreak in 2020, index returns were positively - not negatively - correlated with the number of cases, according to Goldman Sachs.

By now, China has built a track record of containing Covid outbreaks. As such, investors are looking through the short-term economic losses, focusing instead on the policy goodies that Beijing is willing to hand out.