What’s at stake for China’s markets at the US election

Oct 30 (Reuters) – China’s currency and equities will bear the brunt of a protectionist shift in the U.S. and are seen trading sensitively to the election’s trade and foreign policy implications.

Investors say a win for Donald Trump, particularly if accompanied by a Republican sweep of Congress, is expected to squeeze the yuan and shares in export sectors.

A victory for Democrat Kamala Harris is likely to result in opposite trades. Here are how investors see markets moving:

DOLLAR/YUAN TO 7.3 ON RED SWEEP

China’s currency is tightly managed. Still, or perhaps because of that, it is expected to fall if the U.S. hikes tariffs on Chinese goods. Analysts see it sliding to 7.3 per dollar or beyond should Trump – who promises dramatically higher tariffs – win the presidency and especially if Republicans control Congress and the White House.

In the lead up to polling day the currency has come under pressure, with exporters reluctant to sell dollars, meaning a rebound may occur if Harris wins office, driving the yuan towards 7 per dollar or below.

In the longer run the exchange rate will be driven by the large gap between U.S. and Chinese yields that is likely to persist regardless of the election result and by the trade policy actually imposed by any incoming administration.

STOCKS

China’s equity market is in the midst of recovering from a years-long slump as authorities promise to address weak consumption and a downturn in the real estate sector.

The election is peripheral to that but likely to drive price moves in export or sanctions-exposed sectors. Defence (.CSI399813), opens new tab and telecom (.CSI931235), opens new tab stocks may receive a boost from a Trump victory, said analysts at Huatai Securities, as investors seek out sectors likely to benefit from state support or those paying handsome dividends.

However, since both Democrats and Republicans are relatively united in antagonism to China and markets may not react dramatically until there are concrete policy changes announced.

OFFSHORE ASSETS

Hong Kong stocks and U.S.-listed depositary receipts may be more volatile as they tend to be traded by foreigners and used by hedge funds who want to bet against Chinese assets.

Index futures and stocks like Hong Kong-listed China internet companies (.HSTECH), opens new tab have retraced almost half their recent gains and are likely to be vulnerable if investors go short to hedge election risks.

Selling in Hong Kong could also pressure the Hong Kong dollar or widen the premium of mainland stocks against Hong Kong-listed counterparts (.HSCAHPI), opens new tab.

Reporting by Ankur Banerjee and Rae Wee in Singapore, Summer Zhen in Hong Kong and Reuters’ Shanghai newsroom. Compiled by Tom Westbrook. Editing by Sam Holmes

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