When Foxconn workers walked off the job in October due to Zero Covid, it disrupted Apple’s (AAPL) production. Protests followed in many cities in China after that. China’s government responded by abruptly ending its Covid policy.
The unexpected re-opening happens during the worst time of the year. The cold and flu typically spread the fastest in the winter months. In addition, China did not vaccinate enough of its elderly population. It also relied on its domestic vaccine to protect people.
The Western-made vaccine from Moderna (MRNA) and BioNTech (BNTX) is potentially more effective. Still, it does not work perfectly. China has limited hospital capacity, including beds.
An increase in infections and mortality in China will likely disrupt the workforce. The world might experience another supply disruption. This will export inflationary pressures globally.
The U.S. Federal Reserve may not recognize the impact of this disruption fueling inflation. It could keep raising rates, hurting the economy.
Investors may protect their portfolios against inflation. Mining companies should fare well. Gold prices might rise. Conversely, utilities might underperform under higher interest rates. Banks will not do well initially as the economy worsens.
Investors should watch the Covid outbreak in China unfold closely.
