As the 2024 U.S. presidential election approaches, the tension between the United States and China continues to escalate, affecting investor sentiment towards Chinese stocks. Both Vice President Kamala Harris and former President Donald Trump assert the need for a tough approach to economic policies related to China, indicating that regardless of who wins, the stakes for Chinese equities remain high.
During recent debates, Harris and Trump demonstrated a rare point of agreement: both support maintaining, if not intensifying, existing restrictions on technology and tariffs against China. As a result of this rhetoric, the outlook for China’s $8 trillion stock market appears grim, with the CSI 300 Index recently plummeting to its lowest mark in over five years. Analysts from Daiwa Securities Group warn that ongoing geopolitical tensions will likely persist for years to come, adding another layer of complexity to investment decisions.
Amidst these challenges, the fear of a further decline after the election looms large. Concerns are growing about the anticipated policies following the election, which could negatively impact China’s assets and economic prospects. Recent findings from China Merchants Securities suggest that a win for Harris would likely mean the continuation of tariffs initiated during the Biden administration, particularly impacting essential sectors such as electric vehicles. Conversely, a Trump victory might trigger a short-term boost in Chinese exports, followed by more stringent tariffs that could weigh heavily on trade.
The ongoing discourse on U.S.-China relations is underscored by the latest bills passed by the House of Representatives, which seek to curtail federal contracting with Chinese biotech firms—a move that has sent stocks of companies like Wuxi AppTec tumbling. This legislative momentum adds to the volatility, with the ultimate outcome still pending clarity in the Senate.
Investors appear to be cautious, holding off on decisions until post-election policies become clearer. A research note from U.S. asset management firm Cambridge Associates highlights that ambiguity surrounding the election is prompting a wait-and-see approach among investors with respect to Chinese equities.
Furthermore, it’s clear that the fortunes of Chinese stocks have significantly deteriorated since the beginning of Biden’s term in 2021. Both the CSI 300 Index and Hang Seng Index have plunged by 42% over this period, starkly contrasting with the 45% rise seen in the S&P 500. This trend raises critical questions about the resilience of Chinese market performance if the current geopolitical landscape remains unchanged.
Looking back at previous election cycles, shares in mainland companies performed better during Trump’s presidency compared to the two years of Biden’s administration thus far, suggesting a complex relationship between U.S. policies and China’s stock market performance.
Amid the backdrop of these uncertainties, financial experts advocate for a prudent investment strategy focusing on high-dividend stocks. UBS Group suggests that a strategic emphasis on companies with stable dividend payouts may offer some protection against the turbulent market environment, particularly in sectors like technology and consumer goods, which may see future recovery if domestic confidence improves.
The dynamics of the upcoming election could play a critical role in shaping the landscape for Chinese shares, compelling investors to navigate Z through these intricacies if they wish to maintain robust portfolios and capitalize on potential market shifts. As the election date approaches, eyes will remain fixed on the candidates’ policies and their implications for U.S.-China relations, ensuring this topic remains a hotbed of discussion for investors and policymakers alike.