How the US election could impact China's markets

FE Team | Published: November 05, 2024 22:30:41

China's currency and equities will bear the brunt of a protectionist shift in the US and are seen trading sensitively to the election's trade and foreign policy implications, reports Reuters.
Investors say a win for Donald Trump, particularly if accompanied by a Republican sweep of Congress, is expected to squeeze the yuan and shares in export sectors.
A victory for Democrat Kamala Harris is likely to result in opposite trades. Here are how investors see markets moving:
China's currency is tightly managed. Still, or perhaps because of that, it is expected to fall if the US hikes tariffs on Chinese goods. Analysts see it sliding to 7.3 per dollar or beyond should Trump - who promises dramatically higher tariffs - win the presidency and especially if Republicans control Congress and the White House.
In the lead up to polling day the currency has come under pressure, with exporters reluctant to sell dollars, meaning a rebound may occur if Harris wins office, driving the yuan towards 7 per dollar or below.
In the longer run the exchange rate will be driven by the large gap between US and Chinese yields that is likely to persist regardless of the election result and by the trade policy actually imposed by any incoming administration.
China's equity market is in the midst of recovering from a years-long slump as authorities promise to address weak consumption and a downturn in the real estate sector.
The election is peripheral to that but likely to drive price moves in export or sanctions-exposed sectors. Defence and telecom stocks may receive a boost from a Trump victory, said analysts at Huatai Securities, as investors seek out sectors likely to benefit from state support or those paying handsome dividends.
Textile, computer, machinery and home appliance makers would likely be sold, they said.
However, since both Democrats and Republicans are relatively united in antagonism to China and markets may not react dramatically until there are concrete policy changes announced.
Hong Kong stocks and US-listed depositary receipts may be more volatile as they tend to be traded by foreigners and used by hedge funds who want to bet against Chinese assets.
Index futures and stocks like Hong Kong-listed China internet companies have retraced almost half their recent gains and are likely to be vulnerable if investors go short to hedge election risks.
Selling in Hong Kong could also pressure the Hong Kong dollar or widen the premium of mainland stocks against Hong Kong-listed counterparts.