China stock market

Hong Kong and China traders weigh what US elections boosting Democrats might mean for trade war

  • Democrats take US House, weakening the hand of the Republican president who has launched a trade war against China
PUBLISHED : Wednesday, 07 November, 2018, 3:38pm
UPDATED : Wednesday, 07 November, 2018, 5:33pm

Hong Kong stocks ended little changed on Wednesday while China shares slipped as traders tried to assess the fallout from the US midterm elections on equities hammered by the US-China trade war.

The high-stakes elections left Democrats retaking control of the House of Representatives and Republicans retaining the Senate. A divided US Congress leaves Republican President Donald Trump with a weaker hand after having had the luxury of both chambers controlled by his party in his early time in the Oval Office.

The Hang Seng Index added 0.1 per cent to 26,147.69 after changing directions at least eight times. The Hang Seng China Enterprises Index, or the H-share gauge, also gained by that much.

The Shanghai Composite Index slid 0.7 per cent to 2,641.34 after swinging for most of the day. The gauge has rebounded 6.2 per cent after touching a four-year low last month after vice-president Liu He said Chinese stocks were worth buying and top financial regulators unveiled a deluge of policies to aid smaller companies in financing.

“The midterm election result will help investors around the world to regain their appetite for risk assets, but that will take time and a big rebound isn’t going to happen overnight,” said Chen Hao, a strategist at KGI Securities in Shanghai. “The Trump administration has started the trade war with China and advocates anti-globalisation. And all these things have been regarded as a major threat to global growth and creating policy uncertainty.”

The China and Hong Kong markets often take their cues from the overnight moves in America. So Thursday could see far more reaction.

Benchmarks in China and Hong Kong – where many Chinese companies are listed – are down substantially this year, by 20 per cent and 13 per cent, respectively. While many factors are responsible, there is no doubt that the trade war has weighed down investor appetite for China-related stocks with fortunes tied to exports.

Foreign investors’ favourite Chinese stocks fall back to earth as economy slowdown bites

Congressional Republicans had been reluctant to challenge Trump’s authority to impose tariffs on China, given his strong popularity with the Republican base. Democrats are expected to challenge Trump on a range of his policies, using their new clout.

It’s too early to know how the Democratic takeover of the House may affect Trump’s trade policies. And, regardless of the elections, Trump and China President Xi Jinping already have plans to meet for dinner in December after the G20 summit in Buenos Aires, raising the possibility they may strike a deal.

Trump to host dinner with Xi at G20 summit, but will there be a deal?

“As this outcome was widely anticipated, we see little immediate market impact,” UBS analysts led by Justin Waring said of the elections. “On the trade front, the Trump administration will continue to use tariffs to pressure trading partners, especially China. There will likely be an increase in gridlock, making it difficult to pass legislation.”

Among individual shares, Hong Kong Exchanges and Clearing advanced 1.2 per cent to HK$224.40 after saying third-quarter profit increased 20 per cent from a year earlier to HK$2.44 billion (US$312 million). The result soundly beat the estimates of analysts polled by Bloomberg.

Geely Automobile Holdings tumbled 4.9 per cent to HK$15.40 as the worst performer on the Hang Seng Index. Sales of the carmakers may face headwinds in November and December, analysts led by Jeff Chung at Citigroup wrote in a note.

In the mainland, brokerages led the decline after being earlier ramped up on expectations top leaders’ efforts to talk up the market will improve market sentiment. Tianfeng Securities dropped 4 per cent to 7.36 yuan and Zheshang Securities sank 3.3 per cent to 7.33 yuan.

Major markets in Asia closed in a mixed note. Japan’s Nikkei 225 index and South Korea’s Kospi dropped at least 0.3 per cent, while Australia’s S&P/ASX 200 Index rose 0.4 per cent. US futures contracts on the Dow Jones Industrial Average and the S&P Index both edged higher in Asian trading hours.