China announced a shortening of its quarantine requirements last week, while simplifying travel rules and adjusting its monitoring regime. The news raised hopes that the country could soon materially roll back its draconian Covid restrictions, widely seen as the strictest in the world. China has stood firm on its zero-Covid policy even as countries around the world adopt a “live with the virus” approach. Investors cheered the latest announcement. The Hang Seng Index jumped 7.74% on Friday following the news, while the Shenzhen Component and Shanghai Composite climbed 2.12% and 1.69% respectively. Fund manager Brian Arcese believes the market reaction reflects the “underlying fundamentals that earnings will really start to improve.” He anticipates the impact of earnings revisions to flow through in the first quarter of 2023, with earnings improvement materializing in the “second or third quarter of the year.” How to play the reopening Goldman Sachs estimates that a full reopening could drive 20% upside for Chinese stocks , and identified Chinese stocks that are well placed to gain from the easing of social distancing and travel curbs. Jun Bei Liu, a portfolio manager at Tribeca Investment Partners, said last week’s changes to the Covid restrictions means reopening trades are “finally going to take off.” “Like the playbook we have seen in other markets, Covid losers are going to rally meaningfully in the next 6 months though it’s going to be patchy to start,” she said. She identified “Covid losers” — such as the consumer and travel sectors — as “big beneficiaries,” adding that the property sector will be an indirect beneficiary. Meanwhile, Arcese, who is a portfolio manager at Foord Asset Management, said the firm has a China exposure of about 20%. One of his top picks to play China’s reopening is online travel platform Trip.com . He noted that the company has 1.3 million hotels listed on its network, the largest network among its peers. It also collaborates with more than 300 airlines with a presence across 200 countries, he added. “While Meituan has taken share in the lower tier cities, Trip.com remains strong in high end/upper tier cities. It has also been fighting back, driving lower tier city adoption through online-to-offline effort with more than 6,000 offline stores,” Arcese said. More than 12% of the $368 million Foord Global Equity Fund managed by Arcese is allocated to three Chinese company stocks: Tencent , Alibaba , and JD.com . While not direct reopening plays, Arcese said these stocks offer the opportunity to tap the growth of the Chinese consumer and a recovering Chinese economy. In a note on Nov.13, Morgan Stanley’s Chief China Economist Robin Xing said he sees a full reopening for China in the spring of 2023 “at the earliest.” But the investment bank has identified “China reopening beneficiaries” as one of its “key trades for 2023,” according to equity strategist Laura Wang in a separate note on the same day. Morgan Stanley’s list of reopening beneficiaries are expected to deliver positive earnings growth in both 2023 and 2024. They also have at least 10% upside to their current stock prices and are overweight rated by the bank. Unsurprisingly, the list comprises several stocks in the consumer space. They include Chinese online shopping platform Meituan , sports apparel firms ANTA Sports and Li Ning , luggage manufacturer Samsonite International and casino operator Wynn Macau . Hong Kong’s flag carrier Cathay Pacific makes the list too. But Qi Wang, CEO of boutique China A-share fund manager MegaTrust Investments, warned that “it’s too early” to play the reopening theme, with the reopening process set to be “choppy and non-linear.” This will make stock trading more difficult given the high volatility, he said. “Having said that, we like China Tourism Group Duty Free as a near monopoly in both domestic and international duty free shopping. It should benefit from the re-opening of China as tourism gradually recovers to pre-Covid levels,” he added.