The Chinese government’s move Wednesday to further roll back strict Covid-19 measures should boost the prospects for a host of Club holdings with substantial operations in China, including Estee Lauder (EL), Wynn Resorts (WYNN) and Starbucks ( SBUX), all of which have been weighed down by nearly three years of lockdowns. The news China’s National Health Commission on Wednesday said people will now be able to travel throughout the country without showing a negative Covid test or health code. The new rules also allow those with mild or asymptomatic Covid cases to quarantine at home, rather than at designated facilities. Additionally, local authorities will no longer be able halt work or production unless an area is designated as high-risk. Beijing’s decision to further ease public-health policies comes a little more than a week after protests erupted in China over the government’s draconian zero-Covid policy, an approach that has severely restricted citizens and pressured the world’s second-largest economy. China has taken minor steps in recent months to ease its Covid restrictions, but Wednesday’s announcement amounts to the most significant policy shift to date. Impact on Club stocks Club stocks with China exposure largely followed the broader market lower Wednesday amid a day of choppy trading in equity and energy markets, fueled by growing fears of a recession. But, ultimately, the holdings which rely on China for a substantial portion of revenue — Estee Lauder, Wynn and Starbucks — should see their stock prices ultimately move higher, as China’s economy reopens. For months, we have argued that China’s strict Covid stance was untenable over the long term and eventually a serious pivot toward reopening would materialize, providing much-needed clarity to businesses and helping spur economic activity. As a result, we’ve exercised patience and held onto stocks like Wynn Resorts, which depends heavily on its casinos in the Chinese special administrative region of Macao. At the same time, we also know stocks are forward-looking assets, and decided not to wait for Beijing to to fully roll back restrictions before investing in Estee Lauder, which relies on China for more than a third of total sales. In late September we bought back into the cosmetics giant, and still believe it’s worth buying here. Similar thinking informed our decision to initiate a position in Starbucks in late August . As Wednesday’s announcement likely helps China’s economy to recover, a number of other Club holdings should also see tailwinds. At a high level, our energy stocks — Pioneer Natural Resources (PXD), Coterra Energy (CTRA), Devon Energy (DVN) and Halliburton (HAL) — benefit from elevated crude oil prices. And increased oil demand from the world’s No. 2 economy should ultimately lend support to crude, with knock-on effects for our oil stocks. Apple (APPL) is another potential beneficiary of China’s policy shift. The iPhone maker has faced Covid-related…
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