The approaching US presidential election is adding additional headwinds for Chinese stocks as both candidates deploy tough rhetoric over economic policies toward Beijing.
US Vice President Kamala Harris and former President Donald Trump disagreed on little during their debate last week, but both advocate a tough stance on the world’s second-largest economy, using technology curbs or tariff hikes. Regardless of the election outcome, geopolitical tensions will continue to haunt Chinese stocks for four years, according to Daiwa Securities Group.
The fallout from the debate could deepen negative sentiment toward China’s $8 trillion stock market, where the benchmark CSI 300 Index fell to its lowest level in more than five years last week amid concerns about a poor growth outlook. The index has given up all the gains from direct government purchases of stocks and exchange-traded funds earlier this year, underscoring the failure of a regulatory effort to rein in the slide.
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China’s assets and economy could face further downside risks after the US elections, according to China Merchants Securities, which calls for increased policy support.
“If Harris is elected, she will most likely maintain the tariffs imposed by the Biden administration on key Chinese products [such as electric vehicles]”, said Zhang Jingjing, an analyst at the brokerage. “If Trump wins, China’s exports will be front-loaded in the short term before declining afterward, as all-out tariffs are his fundamental policy. More active domestic policy measures will be needed to counter the fallout.”
In the debate, Harris criticized her rival for not doing enough to protect U.S. interests against China, and accused Trump of selling American semiconductor chips that Beijing used to expand its military power. A Harris victory would mean a continuation of the Biden administration’s targeted technology restrictions, posing more challenges to China’s technology supply chains, Daiwa said.
Trump, on the other hand, is threatening to impose a 60 percent tariff on all Chinese imports. The former president imposed more than $300 billion in tariffs on Chinese goods during his first term, setting off a trade war that has sent relations between the world’s two largest economies to their coldest levels in decades.
Tensions between the two countries remain high. The House of Representatives last week passed a bill that would ban federal contracts with Chinese biotech companies, sending shares of Hong Kong-based Wuxi AppTec and Wuxi Biologics plummeting, as the two rely on the U.S. for at least half of their revenue. The legislation still needs to be approved by the U.S. Senate before Joe Biden can sign it into law.
“Uncertainty over the US elections and future US policy towards China is keeping investors on the sidelines,” US asset management firm Cambridge Associates said in a research note last month. “With these considerations in mind, investors should hold Chinese equities in line with their portfolio benchmark weightings.”
For the rally in Chinese stocks to continue, investors would need to see a recovery in domestic confidence and demand, particularly in the affected real estate and consumer sectors, the report said.
Chinese stocks have been hammered since Biden took office in January 2021. The CSI 300 Index and the Hang Seng Index have both fallen 42 percent over that period, making them the worst performers among the world’s major benchmarks, according to Bloomberg data. The S&P 500 Index has risen 45 percent over that period.
A screen shows financial figures in Shanghai on September 12, 2024. Photo: Bloomberg alt=A screen shows financial figures in Shanghai on September 12, 2024. Photo: Bloomberg>
Stocks of Chinese companies outperformed during Trump’s 2017-2021 term, with the CSI 300 rising 65 percent and the Hang Seng index gaining 30 percent, though both indexes underperformed the S&P 500, which rose 70 percent during that period.
According to UBS Group, the best strategy to weather the uncertainty surrounding the US elections is to buy stocks that can provide stable dividend payments.
“Amid geopolitical uncertainties, we continue to favor a high dividend yield strategy as a core portfolio, with beta options in the form of internet, real estate-related sectors, education and [semiconductor] “We are looking for a reliable partner for our equipment,” said James Wang, head of China strategy at the Swiss bank in Hong Kong.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, explore the SCMP app or visit the SCMP Facebook page and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.
