The investors Buoyed by years of Sino-US trade conflict, they appear willing to face the risk of even higher tariffs in the wake of the US presidential election and favor Chinese assets on bets for more stimulus.

Whether it’s Donald Trump or Kamala Harris as the new US leader, global money managers expect an escalation of hostility towards China. But rather than shunning Chinese assets altogether from this perspective, they argue that Beijing’s policies will continue to support stocks, particularly those listed on the mainland.

A dovish central bank is also seen as a plus for local government bonds. However, the mood is less bullish when it comes to the yuan, as monetary easing to offset any post-election headwinds has the potential to weaken the Chinese currency.

The prevailing view is that another term for Trump, who supports a 60 percent tariff on all Chinese imports, will be generally more negative for the Asian country than a Harris victory. However, there is less fear of a market shock similar to the one seen when the Republican won in 2016. Trade wars are no longer new, and investors have steadily shed China risk as geopolitical tensions simmer under the current administration.

Investors are also keenly aware that the MSCI China index has nearly doubled under Trump but is down more than 40% under President Joe Biden so far, underscoring how a host of factors, including a regulatory crackdown of China, have affected market performance.

“In my view, the policy stimulus is more important for the Chinese economy and stock market than the US election,” said Jian Shi Cortesi, portfolio manager at Gam Investment Management in Zurich. “The Chinese government has several policy measures ready to respond to possible trade measures if Trump wins.”

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A head-to-head race between Trump and Harris, less than two weeks after the election, makes it harder for funds to position themselves pending the results and explains their greater focus on China’s political signals.

Buying opportunity

Chinese stocks have seen a dramatic recovery since a blitz of stimulus in September, with the CSI 300 index up more than 20 percent from last month’s low. Jefferies and M&G Investments are among those who believe an election-driven sell-off will be a chance to add Chinese stocks.

“If Trump is elected, you’re going to have volatility, especially on Chinese stocks,” but some of the negative impact may be offset by future policy support, said Fabiana Fedeli, global chief investment officer for equities, multiple assets and sustainability at M&G. “If we see big declines, we’ll probably use that as an opportunity to buy.”

Many investors say mainland-listed shares will be better insulated from electoral swings than those traded in Hong Kong or the US – where access by foreigners is easier.

“Policy momentum in China is very strong and the election shouldn’t affect a lot of that, especially the kind of high-quality SOE, high-dividend names,” said Jon Withaar, head of Asia specials at Pictet Asset Management. .

Tariff threat

An analysis by Bloomberg Economics shows that compared to 2018-2019, when Trump’s tweets about trade and tariffs sent shockwaves through global financial markets, there is less of such a correlation now.

Back then, “the world was integrating and so tariffs and politics outside the US became a bit of a shock not just to investors but to companies in the region,” said Andrew Swan, head of Asia excluding Japanese equities at the Man Group. in a Bloomberg TV interview. “The world now understands that we live in a different kind of geopolitical landscape.”

To be sure, exports have been a rare bright spot as China suffers a slowdown in domestic demand, meaning trade tensions may be a greater economic headwind than in the past. The country is more vulnerable to tariffs than it was in 2018, according to TS Lombard, and a Trump victory could delay Beijing’s stimulus as it opts to keep the powder dry until US policy is clarified.

Harris’s campaign messages suggest that while she won’t go easy on China, she sees no upside to a wider rift between the world’s two largest economies. She criticized Trump for starting a trade war and compared the tariffs to a “Trump sales tax” that would raise prices across the board for middle-class families.

Manulife Investment Management sees onshore government bonds and dollar bills issued by state-owned enterprises as attractive, expecting the People’s Bank of China to remain accommodative.

“China may let the yuan weaken to some extent to mitigate the negative impact on exports” if Trump wins and imposes higher tariffs, said Kiyong Seong, chief Asia macro strategist at Societe Generale. “In turn, it will create more room to cut policy rates and allow China’s interest rates to fall – so a bullish case for Chinese bonds.”

Short yuan

Currency traders are largely bearish on the yuan in a Trump win scenario, while expecting a rebound in the event of a Harris win. The yuan fell to its weakest in a decade in August 2019 as the trade war escalated, but ended Trump’s term about 6% stronger than it started.

The US dollar gained this month as the chances of a Trump presidency fueled bets on higher inflation and high Treasury yields.

“The increased risk premium on tariff uncertainty should strengthen the dollar, with the offshore yuan likely to be the most affected,” said Chidu Narayanan, head of Asia-Pacific macro strategy at Wells Fargo Securities Singapore. The company’s position has been tilted toward a stronger US dollar against the yuan since late September and is also long on the pair’s volatility, he added. BLOOMBERG