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Macroscope
China’s stock market has little to fear from Trump presidency – unlike the US
- While Donald Trump has taken credit for the fall in Chinese stocks, the truth is that domestic, not external, factors are at play in China
- Instead, the focus should be on Trump’s threat to US democracy, the rule of law and the credibility of American economic policy should he be re-elected
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Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.
Equity investors in China have plenty of reasons to worry, so many that it is unclear what the most important factor is in the rout that has wiped some US$7 trillion off the market value of shares in mainland China and Hong Kong since the early 2021 peak.
The longer the slump persists – speculation that Beijing is readying more forceful measures to prop up the stock market sparked a rally but have been met with scepticism – the more uncertainty there is over the principal driver of the sell-off.
During the past month, more attention has been paid to tensions between the United States and China. In a report published on February 2, Goldman Sachs said one of the most frequently asked questions from its clients in Beijing and Shanghai – who are mostly mutual funds, private equity funds and asset managers – was what a Donald Trump victory in the US presidential election in November would mean for China.
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This is not surprising, given Trump’s threat to revoke “most favoured nation” trade status for China and impose a flat 60 per cent tariff on all Chinese imports. According to Bloomberg, that would slash the proportion of US imports coming from China – the largest US trade partner in the past two decades – to almost zero, inflicting the most damage on China’s electronics and textile industries.
True to form, Trump boasted last month that the reason Chinese stocks were falling was because he won the Iowa caucuses by a wide margin, strengthening his grip on the Republican Party and reinforcing the perception among some pundits that he is the favourite to win the election.
Currency traders are starting to price in US political risk. A measure of the cost to hedge the offshore yuan that covers the election – the spread, or gap, between nine-month implied volatility in the offshore yuan and its six-month equivalent – has shot up to its highest level since 2017 relative to comparable periods, according to Bloomberg data.
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