Hong Kong Stock Exchange

China, Hong Kong traders await US election results that could impact shares weighed down by trade war

  • Traders wait to see voters’ verdict on US President Donald Trump’s first two years in congressional elections, which could impact trade war that has weighed down China-related shares.
PUBLISHED : Tuesday, 06 November, 2018, 2:20pm
UPDATED : Tuesday, 06 November, 2018, 5:40pm

Hong Kong and mainland markets ended little changed Tuesday, as traders awaited results of the US elections that could impact President Donald Trump and his trade war with China.

“Right now most investors are waiting for the US election results, which could signal a major turning point in the relationship between the US and China, relating to the trade war,” said Castor Pang Wai-sun, head of research at Core Pacific-Yamaichi.

If voters end up turning over the House of Representatives to Democrats, as many analysts expect, that would weaken Trump. If the House and Senate remain in Republican control, the Republican president will feel emboldened, “and we will continue to see Donald Trump continue to put pressure on China,” Pang said.

The Hang Seng Index ended up 0.72 per cent, closing at 26,120.96, while the Hang Seng China Enterprises Index was little changed, gaining 0.83 per cent, to close at 10,632.64.

On the mainland, indexes ended the day mixed but only slightly changed. The Shanghai Composite slipped 0.23 per cent. The CSI 300 of large caps lost 0.6 per cent, while the ChiNext gauge of smaller companies rose 0.02 per cent.

The US goes to vote on Tuesday there in what has been the most expensive midterm campaign in the country’s history, seen by many as a referendum on President Donald Trump first two years in office.

The outcome of the election will be felt in Hong Kong, where more than 60 per cent of listed companies in the city are China-related companies, said Louis Tse Ming-kwong, managing director of VC Asset Management.

“Tariffs affect the Chinese economy as a whole, and therefore all those companies, which has been reflected in the markets over the last couple of months,” Tse said.

The Hang Seng Index has slumped more than 13 per cent so far this year. Meanwhile, the Shanghai Composite is down nearly 20 per cent for the year.

The Hong Kong and China markets may react strongly on Wednesday, as traders try to parse the meaning of the outcome. The elections is likely to be felt for at least several months when investors might rebalance their portfolios in light of the elections in the world’s largest economy. That might cause a market rebound, said Pang.

He added another variable that will affect shares will be the reaction of Chinese President Xi Jinping, and the outcome of US-China trade negotiations.

“Trump of course will do as much as he can to make China bow to his tariff pressure,” said Tse.

If no resolution is made on trade in the near future, the Hang Seng is likely to fall to the 24,000 level, he predicted. Continuing trade tensions could drag the index down to the 22,000 level, he said.

On Tuesday, China Vice-President Wang Qishan, speaking at a Bloomberg New Economy Forum in Singapore, said Beijing is ready to discuss a trade solution with Washington.

He said Beijing supports talks with the US “on issues of mutual concern” to reach a solution best for both sides, trying to reassure investors wary of the impact of the ongoing US-China trade war.

Apple suppliers in China fell sharply, the most among blue chips, after the company was reported to be cancelling a production boost for its iPhone XR line, adding to concerns about the outlook for its largest product category.

Sunny Optical finished down 3.82 per cent to HK$75.50 after earlier slumping 7 per cent, while AAC Tech pared some losses to end down 3.46 per cent to HK$60.00.