US Elections May Impact China's Currency and Stocks
As the U.S. elections approach, investors are closely monitoring the potential impact of the elections on China's financial markets. The Chinese yuan and stock markets are particularly sensitive to the outcomes related to trade and foreign policy.
Expectations suggest that if Donald Trump wins, especially with the Republican Party taking control in both Congress and the White House, the yuan may depreciate against the dollar, potentially rising to 7.3 or higher. The primary driving force behind this view is Trump's promise to impose significantly higher tariffs on Chinese goods.
The yuan is currently under pressure due to exporters holding onto dollars, but a victory by Democrat Kamala Harris could reverse this trend, with forecasts indicating that the yuan could strengthen against the dollar to around 7 or lower. In the long term, the exchange rate will be influenced by the persistent yield differentials between the U.S. and China and the trade policies implemented by the incoming administration.
China's stock market is currently recovering from a long downturn, with the government taking steps to boost consumption and address challenges in the real estate sector. The outcome of the U.S. elections could affect stock prices in sectors vulnerable to export issues or sanctions. Defense and telecommunications stocks may benefit from a Trump victory, as investors expect state support and attractive dividends. Conversely, stocks in textiles, computers, machinery, and household appliances may face selling pressure.
Despite potential immediate reactions to the election results, the general consensus among market analysts is that both the Democratic and Republican parties have demonstrated a relatively united stance against China. Therefore, significant market movements may only arise when actual policy changes are announced.
Offshore Chinese assets, such as Hong Kong stocks and American Depositary Receipts, are expected to experience increased volatility due to their growing popularity among foreign traders and hedge funds. These assets, which have recently given back a substantial portion of their gains, could be particularly vulnerable if investors decide to hedge against election risks.
Additionally, selling pressure in Hong Kong may affect the value of the Hong Kong dollar or widen the valuation gap between stocks traded on the mainland and those listed in Hong Kong.