With the U.S. presidential election on the horizon, global investors are carefully navigating the longstanding trade tensions between the United States and China, focusing on the implications of a potential shift in U.S. policy. Whether the next U.S. president is Donald Trump or Kamala Harris, experts suggest that American hostility toward China will persist. However, rather than avoiding Chinese markets, global asset managers are doubling down on their investments, confident that Chinese economic policies and stimulus efforts will stabilize markets amid geopolitical uncertainties.
Despite the prospect of escalating tariffs and heightened tensions, investors are increasingly confident that Beijing will continue to stimulate the economy, making Chinese assets attractive even in the face of potential U.S. policy headwinds. The CSI 300 Index, a benchmark for China’s mainland stock market, has surged by more than 20% following a stimulus injection in September, underscoring the growing appeal of Chinese equities to global investors. Notably, the stimulus measures, coupled with dovish monetary policies from the People’s Bank of China, are expected to cushion any immediate shocks from increased tariffs.
“Policy stimulus is more important for the Chinese economy and stock market than the U.S. election,” noted Jian Shi Cortesi, portfolio manager at Gam Investment Management. Cortesi, like many fund managers, believes that Beijing’s policy measures will soften the impact of any potential trade tariffs, particularly if Trump wins the election and proceeds with his 60% tariff proposal on Chinese imports.
Historically, China’s markets have shown a degree of resilience during U.S.-imposed economic constraints. The MSCI China Index almost doubled under Trump’s first term, despite a wave of tariffs and geopolitical strife, while current President Joe Biden’s term has seen the index decline over 40%, largely due to China’s domestic regulatory clampdowns and the country’s slowing growth.
Many asset managers now view Chinese stocks, especially those listed on the mainland, as a hedge against political volatility. Mainland stocks are perceived as better insulated from U.S. electoral swings compared to those listed in Hong Kong or New York, as they remain primarily under domestic investor influence. Jon Withaar, head of special situations for Asia at Pictet Asset Management, notes, “Policy impulse in China is very strong, and the election shouldn’t affect a lot of these, particularly the high-quality state-owned enterprises and high dividend names.”
With just days before the election, the prospect of Trump returning to office has stirred expectations of a return to aggressive trade policies, reminiscent of his previous tariffs and sanctions. Trump’s proposal to levy a 60% tariff on all Chinese imports is seen as a clear continuation of his economic nationalist agenda, which, according to TS Lombard, could further strain China’s already fragile export sector.
In contrast, Harris’ campaign approach, while still assertive on China, has focused on moderating economic ruptures rather than intensifying them. Although she has criticized the trade war as detrimental to American middle-class consumers, calling tariffs a “Trump sales tax,” her administration is expected to maintain a tough stance on China without actively seeking economic decoupling. This perspective is attractive to some investors who see her policies as likely to create less volatility in the Sino-American economic relationship.
The optimism surrounding Chinese assets does not extend to all corners of the market. While stocks and local government bonds remain appealing, the yuan’s outlook is more uncertain. If Trump is re-elected and proceeds with higher tariffs, the People’s Bank of China may implement further monetary easing to support exports, potentially weakening the yuan. A weaker yuan could help China’s export sector withstand new tariffs, but it would add pressure on the currency markets, reducing its appeal to global investors.
Kiyong Seong, lead Asia macro strategist at Société Générale, expressed confidence in the PBOC’s ability to mitigate the yuan’s devaluation with targeted interest rate cuts. “China may let the yuan weaken to some extent to mitigate negative impact on exports. In turn, it will create larger room to cut policy rates and allow China rates to decline, thus presenting a bullish case for China bonds,” he said.
On the other hand, currency traders are largely bearish on the yuan under a Trump win scenario, fearing that the increased tariffs will continue to destabilize the Chinese currency. Wells Fargo Securities Singapore has maintained a position tilted toward a stronger dollar against the yuan, betting that heightened tariff risk will bolster demand for the dollar, even as Chinese interest rates decline.
A critical shift in global economic dynamics since 2018 has tempered the direct influence of U.S.-China trade policies on broader financial markets. Back then, Trump’s surprise tariffs shocked both corporate and investment communities, with ripple effects through global supply chains and investor sentiment. However, many experts agree that the world is now more prepared for the “new normal” of persistent Sino-American tension.
Andrew Swan, head of Asia excluding Japan equities at Man Group, noted this shift in a recent Bloomberg TV interview: “The world was integrating and so tariffs and policy out of the U.S. became a bit of a shock not just to investors but also to companies in the region. The world now understands we are living a different sort of geopolitical landscape.” This acknowledgment suggests that the economic ecosystem has adapted, with investors now more prepared to manage risk in light of the ongoing decoupling between the two superpowers.
China’s export sector remains a critical component of its economy, and while it has held up under recent strains, domestic consumption is notably slowing. Analysts suggest that trade tensions could have an even greater impact on China’s economy now compared to 2018. However, many investors believe that China’s well-coordinated economic policies and controlled domestic market could mitigate the damage of a Trump-induced trade squeeze, especially if Beijing chooses to delay any additional stimulus measures until it can gauge U.S. policy shifts post-election.
Manulife Investment Management has expressed particular optimism toward Chinese onshore government bonds and dollar-denominated notes from state-owned enterprises (SOEs), predicting that the People’s Bank of China will remain dovish in its monetary policy approach to offset export challenges. This dovish stance would likely draw further global investments into Chinese government debt, providing stability even as the nation faces potential trade headwinds.
For global funds, a Trump victory could introduce a fresh wave of volatility in Chinese equities, potentially triggering an initial selloff. However, some asset managers see this volatility as an opportunity to increase their positions in Chinese stocks, especially those bolstered by domestic policy support. Fabiana Fedeli, global chief investment officer for equities, multi-asset, and sustainability at M&G Investments, is one of several who consider a dip in Chinese stocks to be a buying opportunity. “If anything, if we see some big declines, we’ll probably use it as an opportunity to buy,” Fedeli commented, reinforcing the notion that many investors remain confident in the longer-term stability of Chinese markets.
As the U.S. election draws closer, the possibility of heightened U.S.-China hostility remains a key factor in global investment strategies. While the specific policy paths may diverge depending on who takes office, most market analysts agree that neither candidate is likely to reverse the existing trend of trade competition and geopolitical rivalry. For investors, this situation presents a dual-edged sword: an opportunity to capitalize on Chinese assets backed by domestic economic resilience, but with the ever-present risk of U.S. policy backlash.
The strategic balancing act between embracing Chinese assets for their potential returns and safeguarding portfolios from U.S.-induced volatility remains complex. However, the prevailing sentiment among investors is one of cautious optimism. As Manulife Investment Management’s Kiyong Seong aptly summarized, “China’s markets have weathered U.S. tensions before, and while challenges remain, we believe the fundamentals of policy-driven growth will continue to attract global capital.”
Whether the next U.S. president is a continuation of Trump’s hardline stance or a more tempered approach under Harris, it is evident that investors are no longer caught off guard by U.S.-China tensions. Instead, they are increasingly factoring these dynamics into long-term strategies, betting that China’s proactive policy responses will continue to provide opportunities amid the risks.
In the final analysis, investors appear ready to brave potential shocks from higher tariffs and geopolitical volatility, grounded in the belief that Beijing’s policies will support stable growth. As the world enters a new chapter of Sino-American relations, global markets are likely to keep a close eye on China’s economic signals, using them as a barometer for navigating an increasingly polarized global investment landscape.
