(Bloomberg) -- Investors inured to years of Sino-American trade spat seem willing to brave the risk of even higher tariffs following the US presidential election, and are favoring Chinese assets on bets for more stimulus.
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Whether it be Donald Trump or Kamala Harris as the new US leader, global money managers expect escalated hostility toward China. But rather than shun Chinese assets altogether on that prospect, they are banking that Beijing’s policies will continue to support stocks, especially those listed on the mainland.
A dovish central bank is also seen as a boon for local government bonds. The mood though is less sanguine when it comes to the yuan, as monetary easing to offset any post-election headwinds has the potential to weaken the Chinese currency.
The dominant view is that another term for Trump, who is advocating a 60% levy on all Chinese imports, will be overall more negative for the Asian country than a Harris win. Still, there’s less fear of a market shock akin to that seen when the Republican won in 2016. Trade wars are no longer a novelty, and investors have been steadily de-risking from China as geopolitical tensions simmered under the current administration.
Investors are also well aware that the MSCI China Index almost doubled during Trump’s term but is down more than 40% under President Joe Biden so far, highlighting how a myriad of factors including China’s regulatory crackdown has affected market performance.
“Policy stimulus is more important for the Chinese economy and stock market than the US election in my view,” said Jian Shi Cortesi, a portfolio manager at Gam Investment Management in Zurich. “The Chinese government has more policy measures prepared to respond to potential trade measures if Trump wins.”
A neck-and-neck race between Trump and Harris less than two weeks into the election is making it hard for funds to position in anticipation of the results, and explains their greater focus on China’s policy signals.
Buying Chance
Chinese stocks have seen a dramatic revival since a stimulus blitz in September, with the CSI 300 Index up more than 20% since last month’s low. Jefferies and M&G Investments are among those that believe an election-driven selloff will be a chance to add Chinese stocks.
“If Trump gets elected you would have volatility, particularly around Chinese equities,” but some of the negative impact can be balanced out by forthcoming policy support, said Fabiana Fedeli, global chief investment officer for equities, multi asset and sustainability at M&G. “If anything, if we see some big declines, we’ll probably use it as an opportunity to buy.”