China’s rapid reopening brings joy and woe for world markets

• Investors hope reopening will counter Western recession risks
• But commodities rally may keep inflation high
• Thai baht, Chilean peso, European luxury goods tipped to win

Jan 13 (Reuters) – The rapid reopening of China’s economy from COVID lockdowns is brightening the outlook for global investors keen to leave behind one of their worst years on record, but may also fuel the inflationary pressures policymakers hope are abating. The impact of the reopening of the world’s second largest economy on financial markets, hit by double-digit losses last year as inflation and interest rates jumped, is critical. Being touted among the top buying bets on recovery hopes are emerging markets, commodity currencies, oil, travel and European luxury companies. No doubt, it will be a bumpy ride. COVID cases, deaths, and the economic hit to China from rampant infections are yet to play out and commodity prices are already rising, adding to inflation risks. For now investors are focused on the positives, anticipating more stimulus measures by Beijing and that the health crisis and economic hit to China will peak in the first quarter. “The reopening story is looking quite good and … there is a lot of credit and fiscal stimulus that China is putting into the system,” said Edward Al Hussainy, senior interest rate and currency analyst at Columbia Threadneedle, which manages $546 billion of assets. “That stimulus is finding its way into global asset prices.” China’s reopening also takes the sting out of recession risks. Goldman Sachs expects the euro zone economy to grow by 0.6% this year, versus a contraction forecast previously. Chinese demand “will offset that story in the West…” that consumer demand and business spending have been slowing down as interest rates have gone up, said Chris Iggo, chief investment officer for core investments at AXA Investment Managers. But a boost from China’s reopening raises some concerns about inflation. China is the world’s leading importer of oil and many other commodities — oil prices have risen 10% since mid-December to almost $84 . “One thing that we need to be sensitive to is whether the recovery in China adds to global inflationary pressures,” AXA’s Iggo said. He added that the reopening could prompt the European Central Bank to raise rates for longer since euro area inflation is largely energy driven. The hope is that economic slowdown outside China will offset its rising demand for commodities, dampening the inflationary impact. Goldman Sachs estimates a return to normal travel and transportation behaviour in China could boost oil consumption by 1.5-2 million barrels per day.