By Summer Zhen and Jiaxing Li
HONG KONG/SHANGHAI (Reuters) – China’s yuan and stock markets fell sharply on Wednesday as the prospect of a new Donald Trump presidency and Republican control of the U.S. Congress threatened to heighten tensions over trade and technology.
By the time Chinese markets closed, Trump had claimed victory over Democrat Kamala Harris in the tight US presidential race.
US stock futures rose and the dollar rose across the board after Republicans gained a clear majority in the US Senate, although it will not be clear for some time which party will gain control of the House of Representatives.
China’s CSI300 Index fell 0.5%, while Hong Kong benchmark Hang Seng, which is more indicative of sentiment among foreign investors, fell 2.3%.
The Hang Seng China Enterprises Index fell 2.6%.
Hong Kong-listed Chinese technology stocks fell overall, with e-commerce giant JD.com and Alibaba down 4% each.
The US presidential election will have a meaningful impact on the Chinese economy and capital markets. As part of his pitch to boost U.S. manufacturing, Trump had promised voters he would impose tariffs of 60% or more on goods from China.
“Right now, markets are narrowly focused on the prospect of tariffs as it is the easiest lever to put under immediate presidential order, but we have seen other levers that could be deployed to contain China between 2016 and 2020 “, the spokesperson said. Rong Ren Goh, portfolio manager in the fixed income team at Eastspring Investments.
“It could include financial sanctions against Chinese entities, further tightening Chinese access to technology critical to AI development… the list goes on.”
Foreign investors are thus likely to position themselves defensively against China-related assets, likely to hedge their currency risk, he said.
China’s stock market is in the midst of recovering from a years-long slump as authorities vow to tackle weak consumption and a downturn in the real estate sector. The CSI 300 index has risen more than 20% since September 23, when Beijing began rolling out interest rate cuts and stimulus measures.
But a Trump victory could hamper that rally, with technology, defense and export sectors in his policy crosshairs.
Because both Democrats and Republicans are relatively united in their antagonism toward China, markets may not react dramatically until concrete policy changes are announced.
“While both candidates are likely to be hawkish on China, Trump is still less predictable in terms of policy, so the prospect of a Trump win could still dampen sentiment a bit,” said Kenny Ng, strategist at China Everbright Securities International in Hong Kong.
