Market Views: How will US elections impact China's markets?
With the US elections and China's National People's Congress (NPC) meeting approaching, market experts are analysing company fundamentals and preparing for heightened market volatility.
Republican candidate Donald Trump's odds of winning have climbed in recent weeks, pushing Vice President Kamala Harris into a last-minute scramble for votes.
Meanwhile, Beijing is gearing up for its own high-profile political event, with the NPC Standing Committee set to meet from November 4-8.
Market experts expect the US election result to shape China's policy response, with a Trump victory potentially sparking fresh trade tensions.
Beijing is particularly concerned about the former President's promise of new tariffs that could severely impact Chinese export growth.
Chinese stocks have pulled back from the highs they reached following Beijing's stimulus announcement in late September.
A sustained market recovery likely hinges on China's policy response to the outcome of the US election, with investors watching for new stimulus plans to boost the economy.
AsianInvestor asked a host of analysts and fund managers about the likely implications for Chinese policies and equities following these major events.
The following responses have been edited for brevity and clarity.
Wei Li, head of multi-asset investments, China
BNP Paribas
The implications for China’s equity market following the US election are likely to be substantial.
If Trump wins, it is anticipated that an initial dip in the equities market due to heightened tariff concerns; however, this could be followed by a bullish trend as the Chinese government rolls out significant stimulus measures.
The expected RMB10 trillion ($1 billion) fiscal stimulus package will likely instill confidence among investors, pushing equity prices higher in the ensuing months.
On the other hand, a Harris victory could result in a more pronounced rally in Chinese equities, driven by reduced trade tensions and optimistic market sentiment.
The potential for improved liquidity and the prospect of rate cuts would likely enhance investor confidence, leading to increased buying momentum in the equity markets.
In either scenario, the underlying strength of fiscal support is expected to bolster equities, especially if the anticipated stimulus exceeds market expectations.
Simon Tsoi, senior vice president, equities
PineBridge Investments
Looking ahead to the election aftermath, a Democrat win would be regarded as status quo outcome for the market, with stimulus rolling out gradually and benefiting the local market.
Policy makers in Beijing will then continue to introduce fiscal stimulus in a gradual manner.
Investors will tend to be positive under this scenario, with policy makers clear to boost the fiscal economy and bolster financial markets.
A Republican victory would likely cause policy makers to take a more cautious stance.
If heightened trade barriers and tariffs do come to pass, this environment could prompt larger scale stimulus to boost internal demand and compensate for potential loss of exports.
In this scenario, market participants would need to assess the new dynamics, which could be a catalyst for greater volatility.
We believe it is essential to continue to focus on company fundamentals to look for investment opportunities with a bottom-up approach to sail through potential market volatility.
Victoria Mio, head of Greater China equities
Janus Henderson Investors
The impact of the election is probably a little bit more short-term than long-term.
In the near term, how China’s stimulus is structured will change depending on who becomes president.
In the case of Harris wins, then it's a continuation of the existing ones. So, it is a lot clearer in terms of focus on strategic sectors.
In the case of a Trump win, then it can be a little bit more broad-based and affect more sectors.
The Chinese government may need to do a lot more to support exports, and accelerate Chinese companies building supply chain outside, or the government will see the need to boost domestic consumption, etc.
If it is a Trump win, it is very likely that we are going to see a big tariff increase, or as Trump recently said, that tariffs are going to be used as a negotiation tool.
One way or the other, it will become a very credible threat to China in order to be a good leverage.
It will be a risk that investors have to price in, or China has to react and be prepared that this is going to be implemented, and [ensure] they have ways to deal with it.
James Kenney, senior investment manager, emerging equities
Pictet Asset Management
We believe that the timing of the NPC meeting has been strategically placed after the US presidential election as the result of the election can have a bearing on Chinese economic growth in the coming years.
If President Trump returns to office for a second term, it is likely that he will place additional trade tariffs on Chinese imports into the US, which will stunt Chinese growth.
Over the course of this year, export growth has been resilient in an otherwise underwhelming economic environment.
We therefore believe that the policy response is likely to be more substantial if President Trump wins, as economic growth would otherwise be under greater pressure.
Our view at this juncture is that the domestic policy direction is more important to the equity market and if measures can be taken to stabilise the property market, improve consumer confidence and ultimately instill confidence in investors, then we believe that the equity market performance can continue.
International investors positioning in Chinese equities remains very low, valuations remain attractive, and earnings expectations remain relatively resilient.
Ben Bennett, head of investment strategy, Asia
Legal & General Investment Management
We don’t think stimulus measures announced so far are enough to drive a durable economic recovery in China.
With the economy in deflation and real policy rates still high, consumer confidence remains fragile.
On the fiscal side, spending was previously on course to fall short of the budget target, as revenues from land sales collapse and investment projects are hard to identify.
So the authorities are actually playing catch-up, rather than providing another boost.
The Chinese economy faces another headwind should Donald Trump be elected and follow through with his promise of higher tariffs on Chinese exports.
Indeed, the impact could be particularly severe as it’s likely that exporters have been getting ahead of potential tariff increases from both the US and the EU during the summer, ramping up activity which could now slow rapidly.
If Chinese policymakers decide to subsidise exporters to try and boost competitiveness, then presumably this would be met with even harsher terms by the US and the EU.
Instead, China could announce further stimulus to promote the domestic economy and offset external demand weakness.
But such measures would have to be of a much greater magnitude than those announced so far in order to have a lasting impact and lead to a sustained equity market rally.
William Fong, head of Hong Kong China equities
Barings
Given the broader stimulative measures by the Chinese government, we believe these short-term periods of market weakness could present opportunities to revisit the investment case in Hong Kong and Chinese equities.
The recent round of Chinese stimulus appears concerted and targeted, and it has provided a boost to investor sentiment.
However, given that these policies will likely take some time to permeate into the underlying economy, and company fundamentals may still face headwinds in the coming months, earnings growth is only likely to return next year.
Companies that are direct beneficiaries of these policies, especially those in the consumer and property sectors, are strong contenders for potential outperformance.
Shusi He contributed to this story.