Market Round-Up

Protests have broken out in China over the government's strict zero-Covid policies, with protestors calling for Xi Jinping to step down, just a month after he was crowned party leader for an unprecedented third term. The protests have brought together a broad coalition of interests, ranging from factory workers to students and urban elites, all of which have been affected differently under policies. Factory workers have been protesting about unpaid wages, students about youth unemployment rates at 20%, and urban elites are unhappy about a block on international travel.

In response, global stocks fell sharply, with protests prompting investor concern over the future outlook for the world’s second largest economy. The recent rise in coronavirus infections around the country has led to damaged consumer confidence in government policies, and hence lower consumption levels, which will not assist the already weakening Chinese economy. The hope of China reopening was a key driver behind the global bullish end-of-year market narrative, but recent protests have placed a realistic drawback on this.

The biggest issue is that China still doesn’t have an easy exit from the zero-Covid policy, with the Chinese population remaining vulnerable, and 38% of those over 60 still unvaccinated. The vaunted Chinese biotechnology industry has failed to develop an effective vaccine, and with the government refusing to acknowledge its own failings and import foreign vaccines, the relaxation of restrictions could lead to millions of Covid deaths and considerable economic pain.

Beijing is ultimately running out of time, with increased public pressure, a healthcare system under pressure from mass testing and with the broader economy now at its weakest juncture in years. The need for a communist party solution that finally places an end to zero-Covid policies is clear. Although, the importance to Xi of the announcement being viewed as a victory for China over covid cannot be understated.

Net migration, defined as the difference between immigration and emigration to the UK, has risen to record highs in the year leading to June 2022. According to data published by the Office for National Statistics, net migration for the UK was 504,000, smashing the previous record of 332,000 set in 2015.

This is despite Downing Street remaining fully committed to targeting reducing net migration below 100,00, rebuffing recent calls from business leaders to ease visa rules, with current levels placing pressure on accommodation and housing supply, as well as health, education, and other public services.
The increase was largely attributable to inflows of Ukrainian and Afghan refugees, the relocation of British citizens from Hong Kong and the post-pandemic rebound of international students.

However, net migration is boosting the size of the UK’s workforce. Increased overseas recruitment by UK employers has resulted in the number of work visas issued increasing by 72% when compared with pre-pandemic levels to 331,000 – with the NHS being a large contributor to these statistics.

As of result of these figures, the Office for Budget Responsibility has upgraded its forecast for net migration and has announced it as the only factor adding materially to the UK’s potential growth prospects in the coming five years.