By Ahmad Fidauddin, Senior Equity & Derivatives Dealer, Moomoo Malaysia
Former president Donald Trump’s re-election is expected to usher in another wave of global shifts, with significant implications for global markets. From a market volatility perspective, the S&P 500 has seen a 2% decline in the previous week, cutting gains from the immediate post-election surge by more than half, signaling to a tempering of early-day enthusiasm.
The Trump administration pursued protectionist trade policies during his 2016-2020 presidency, most notably in imposing tariffs on Chinese goods, and imposing heightened scrutiny of Chinese companies listed on U.S. exchanges. This U.S.-China trade war resulted in around $550 billion in tariffs on Chinese imports, disrupting global supply chains and prompting retaliatory tariffs from Beijing.
Market participants anticipate that similar policies in 2025 could affect China’s domestic and international markets, shaping the trajectory of key sectors and investor strategies. The President-elect has already vowed sharper tariffs on Chinese imports, with a tougher stance on China further intensified by high-profile administrative appointments with a hawkish track record on their views towards Beijing.
The Chinese economy, particularly export-reliant sectors, may face renewed headwinds. Trump’s emphasis on reshoring U.S. manufacturing and restricting technology exports to China could further impact bilateral trade flows and innovation-dependent industries. However, the decoupling trend in global supply chains, catalyzed by the first trade war, has already prompted China to diversify trade relationships and bolster self-reliance, which may partially cushion future impacts.
General Overview of Market Impact
China’s major indices, including the CSI 300 and Shanghai Composite, experienced volatility during the initial phases of the 2018 trade war, with the Shanghai Composite declining by 25% that year. A renewed Trump presidency could trigger similar market movements, especially if tariffs and trade barriers are reinstated. As of 19 November 2024, the CSI 300 stands at 3,933.59 points, having rebounded from a year-low of 3,159 due to fiscal and monetary easing measures. However, renewed geopolitical tensions could cap gains or lead to corrections.
Chinese ADRs (American Depositary Receipts), such as Alibaba (BABA.US) and JD.com (JD.US), remain under dual pressures of U.S. regulatory scrutiny and Chinese oversight. Despite being up 2.12% on a YTD basis, the Nasdaq Golden Dragon China Index has fallen by around 18.34% since it’s recent peak in October, and could face renewed volatility if Trump escalates restrictions.
Hong Kong’s Hang Seng Index on the other hand, experienced a notable 2.6% decline immediately after the announcement, falling by a further 6.32% after that to 19,631.53 points, reflecting investor apprehension regarding the potential for heightened trade conflicts and their impact on Chinese enterprises. Trade-sensitive sectors in Hong Kong could also be indirectly affected by heightened U.S.-China tensions, given the city’s role as a gateway to Chinese capital markets.
What Does a Second Trump Presidency Spell for Key Sectors?
Semiconductors: Trump’s previous administration-imposed restrictions on semiconductor exports to Chinese firms, severely impacting their operations, with Chinese telecom giant Huawei event being added to the U.S. Department of Commerce Entity List. However, despite these restrictions extending into President Joe Biden’s final few months in office, semiconductors have remained the second-fastest growing industry in China, only behind electric vehicles (EVs). In October 2024, China’s integrated circuits (IC) output grew by 11.8% on a YTD basis.
A renewed Trump presidency is likely to accelerate China’s push for technological self-reliance, with significant implications for both domestic and foreign players. Chinese chipmakers could see greater government support through subsidies and R&D funding, although supply chain disruptions and dependency on U.S. technologies remain a risk.
Since the end of September, the index saw an alarming 75.70% increase over seven weeks, followed by a sharp one-week 12.23% decline to 4,402.17 points. Greater movements are expected as China accelerates domestic chip production and continues to navigate ongoing sanctions, whilst anticipating greater action, though short-term volatility is expected as geopolitical uncertainty persists.
Manufacturing and Exports: China’s manufacturing sector, accounting for nearly 39% of GDP, may face renewed tariff pressures – a big part of Trump’s election platform was a pledge towards a 60% tariffs on all goods from China, spelling further complications for Chinese manufacturers. Export-oriented industries such as electronics, textiles, and machinery risk losing U.S. market share, as the U.S. extends on its commitment towards greater protectionism.
Based on the latest Caixin China General Manufacturing PMI, current operating conditions in the manufacturing economy rose to 50.3 in October 2024, with production growing at their fastest pace in four months. Sustained tariff escalation could drive contractionary pressures, prompting Chinese firms to enhance supply chain resilience through regional diversification, particularly in Southeast Asia and the Middle East.
RMB Stability & Domestic Consumption:
The Chinese Yuan (RMB) was a key subject of the U.S.-China trade war, particularly when the RMB crossed the 7-yuan-per-dollar threshold in 2019 following Trump’s announcement of a 10% tariff in Chinese imports, which then triggered a 3% drop in the Dow Jones, and unlocked greater market volatilities at a global level. Similar pressures could emerge during Trump’s second presidency, placing the RMB-USD exchange rate lower than 7.3 if tensions intensify. Capital outflows and heightened financial market volatility are expected as investors hedge against geopolitical risks.
On the other hand, domestic consumption will continue remaining a growth pillar for China, particularly under the climate on anticipated tariffs. According to the National Bureau of Statistics, retail sales in October grew by 4.8% year-on-year, outpacing forecases of 3.8%. On the E-commerce front, the 11.11 shopping spree saw a 46.5% increase from the previous year, with consumer participation reaching historic highs for Taobao and Tmall, with JD.com reporting an increase of 3.8 times in livestreaming sales.
Should U.S.-China relations worsen in the months ahead, these E-commerce giants might face rising operational costs and declining overseas sales growth, further fueled by currency pressures. However, this could be balanced by the Chinese government’s proactive implementation of measures to boost the local economy through a $1.4 trillion plan. The broader retail and ecommerce sector should expect greater turbulence and uncertainties in navigating a second Trump presidency.
Investor Strategies Amid U.S.- China Tensions
To navigate these dynamics, investors should adopt a diversified approach by focusing on companies that cater to China’s growing middle class and domestic consumption, while also monitoring export trends to identify firms with diversified markets beyond the U.S. market. Opportunities in China’s renewables energy and EV sector are particularly compelling, given robust state backing and the country’s leadership in green technology. Additionally, investors should hedge against currency risk to mitigate the impact of RMB volatility on trade-sensitive industries.
As the countdown begins on Trump’s official presidential swearing in presidency on 20 January 2025, markets are expected to face uncertainties and renewed volatility, with China positioned at the forefront of both disruptions and opportunities. By adopting flexible and informed strategies, investors can mitigate risks while capturing opportunities arising from China’s evolving economic priorities and global positioning.
*Investments involve risk. Full disclaimers at https://www.moomoo.com/my/support/topic9_37. This commentary has not been reviewed by the SC.