Investment Newsletter – December 2022
“Safety and health are the prerequisite for human development and progress.” Xi Jinping, general secretary of CPC Central Committee stressed. Both the infection rate and mortality rate in China are one of the lowest in the world. China could face 1.55 million COVID-19 deaths if it abandoned the current dynamic zero-COVID policy, according to a new study published in Nature Medicine recently. On the other hand, public dissatisfaction with Xi’s zero-COVID policy, expressed on social media or offline in the form of putting up posters in universities or by protesting, is one of Xi’s biggest domestic challenge since the 2019 protests in Hong Kong against an extradition bill.
Since 2020, Beijing has classified COVID-19 as a Category B infectious disease which also includes SARS, AIDs and anthrax. However, the country has been managing its COVID-19 response as Category A infectious disease, a category which also includes bubonic plague and cholera. This categorisation of infectious diseases has implications for its protocols, for example, while COVID-19 has been placed in Category B but is being managed as a Category A disease, the local authorities are allowed to put patients and their close contacts in lockdowns and quarantines in affected regions. Notably, infectious diseases placed in Category A and Category B are managed as Class A given that these infections can spread easily and have a high fatality rate. Currently, Beijing has set ambitious targets to boost vaccination among the elderly, optimising the epidemic control measures in line with the characteristics of the virus variant, striking a new balance between epidemic control and social and economic activities.
Some 70% to 85% of Russia’s crude exports are carried by tankers rather than pipelines. The idea of the price cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the maximum price set by the G7 and its allies. Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil, which its biggest export item accounting for some 10% of world supply for a higher price. At the same time, because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.
The global market needs to prepare for periods of higher volatility, as well as unprecedented economic and financial instability as the world undergoes a fundamental transition from a period of relative stability with low rates and low inflation to a period of high rates, high inflation and intense uncertainty. Since the beginning of 2022, the US Federal Reserve continue to accelerate in monetary tightening to tame inflation, while the People’s Bank of China continue to ease monetary policy in an effort to spur growth activities. On balance, China governments will most likely to prioritise epidemic prevention as responsibilities are greater as compared to economy. That said, China may tolerate higher debt ratios and inflation to some extent if necessary; and on the other hand, the Federal Reserve may downshift in December to deliver a 50-basis-point interest rate hike, but a longer period of US central bank tightening and a higher policy rate peak remain the greatest risks to the current outlook.
