While many investors are optimistic about the Chinese government's move away from its strict zero-COVID policy, Barclays believes that the impact of the country's reopening will likely have only a relatively small impact on U.S. equities ( SPY ) ( SP500 ).
"China’s abrupt shift away from its zero-COVID policy is a potential tailwind for global growth," the firm said in a note to clients. "However, our analysis finds that the implications for US equities at large are fairly minimal."
The financial institution identified two key reasons on why China’s reopening will be smaller than many investors hope. First, there is very small direct exposure to China in terms of S&P 500 revenue. According to Barclays' estimate, this figure stands at roughly 2%.
Second, regarding valuations, the institution believes U.S. equity prices tend to be noticeably less reactive to “China reopening” headlines when compared to their European counterparts.
"While China’s reopening is undoubtedly a turning point, there remain reasons to be cautious," the firm concluded.
Even if Barclays is right about the impact China's reopening could have on U.S. equities generally, companies within China could still benefit from the loosening restrictions. Popular exchange traded funds that offer exposure to the Chinese economy: ( NASDAQ: MCHI ), ( NYSEARCA: KWEB ), ( NYSEARCA: FXI ), ( ASHR ), ( GXC ), ( NYSEARCA: CQQQ ), ( CXSE ), ( KBA ), ( CNYA ), ( YINN ), ( CHIQ ), ( PGJ ), ( CWEB ), and ( RAYC ).
In related China investing news, AllianceBernstein highlighted the potential upside offered by China, as the nation opens up after a three-year shutdown from COVID-19.
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Barclays: China's COVID reopening will likely have minimal impact on U.S. equities