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China Announces Plans to Open Borders, Stocks React Mixedly

After China said it would open its borders next month, U.S. stock indexes were mixed.

December 27, 2022
5 minutes
minute read

After China said it would open its borders next month, U.S. stock indexes were mixed. This news bolstered investors’ hopes that the thawing of the world’s second-largest economy will support global growth. As a result, bond yields climbed.

The S&P 500 was down 0.2% on Tuesday. The tech-focused Nasdaq Composite slid 1% while the Dow Jones Industrial Average added 0.3%.

China has maintained some of the world’s most-restrictive coronavirus lockdown measures, slowing its economy significantly. However, plans to lift Covid-19 quarantine requirements on international arrivals early in January could help boost China’s economy as travel resumes.

This could support the global economy at a time when many nations have lifted interest rates in an effort to tame inflation. The Federal Reserve has signaled plans to raise rates through the spring. This could provide a much-needed boost to the global economy.

"China is a key market for investors right now," said Hani Redha, a portfolio manager at PineBridge Investments. "Without Chinese growth, it was clear that we would see a broad global recession. Now, with China moving in the opposite direction, that risk is reduced."

Stock indexes in Asia were up on Tuesday, with the Shanghai Composite Index rising 1%. Hong Kong’s market was closed for a public holiday.

As China begins to reopen after the Covid-19 outbreak, reports are emerging of overcrowded hospitals and crematoriums. This poses a risk to U.S. companies in the short term, according to Louis Navellier, chief investment officer of money-management firm Navellier & Associates.

"Companies with significant exposure to the Chinese market are facing some uncertainty at the moment," said Mr. Navellier.

Tesla's stock fell 8.8% on Tuesday, extending its seven-session losing streak. The electric-vehicle maker's shares are down more than 40% in December.

In U.S. bond markets, the yield on the benchmark 10-year Treasury note rose to 3.851% on Monday, from 3.746% on Friday. Yields and prices move inversely, so the rise in yields led to a drop in prices for bonds. The tech-heavy Nasdaq, which is more sensitive to higher yields, was the worst-performing major U.S. index.

Meanwhile, a wave of flight cancellations sent Southwest Airlines' shares tumbling. The airline's stock fell 4.7% as it canceled more than half of its flights Tuesday and said a reduced schedule would continue for days. The airline canceled about 8,000 flights from Thursday to Monday amid winter storms, according to data from FlightAware.

Brent crude, the international benchmark for oil prices, rose 1.9% to $85.47 a barrel. This increase in price is due to a number of factors, including increased demand from China and the United States. Additionally, tensions in the Middle East have led to concerns about potential disruptions to supply.

In Europe, the Stoxx Europe 600 index added 0.1%. Markets in the U.K. were closed.

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Valentyna Semerenko
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