Will Joe Bigen government change Trump’s China policy?
Joe Biden has won the US President election 2020 and will be the 46th President, according to CNN and various major media. Investors want to understand whether US policy towards China after Inauguration and as such, China/HK equity market will benefit? Our views are I) No, the rivalry between China and the US should remain; II) Yes, China/HK equity market should benefit in the first honeymoon year.
During the past two years, the US both parties have reached bipartisan consensus against China. For instance, both parties passed bipartisan bills against China officials related to HK matters in Jun 2020. As Republican will likely take control of the Senate, the President-elect will unlikely change his stance against China. But multiple columnists expect that Biden will attempt to re-build relationship with former allies, e.g. Europe, United Kingdom and Japan, to pressure China on multiple issues, like trade, technology. However, the United States has faced enormous domestic challenges, including pandemic, economic recessions, unemployment. Also, Biden will be the first president since 1988 George Bush to face a divided Congress as the Senate will likely be controlled by Republican. Thus, the Biden government needs to spend lots of time to reach consensus with the opposite party and will less likely launch new policy to pressure China further. Thus, in the first year of the honeymoon period, the tension between China and the US will likely be relieved.
HK stock market should benefit
Although the Hang Seng Index (HSI) declined by 12% year-to-date due to both pandemic and rising tension between China and the US, HSI rose close to 1,600 points last week or up 7% WoW, despite suspension of Ant Group IPO.. the market has priced in an improving China-US relationship. HSI was back above 250MA. It is the 2nd time for HSI to penetrate 250MA since late Feb. Although our initial analysis does not expect a dramatic improvement of China-US relationship, noise and tensions should be reduced. Investment sentiment normally swings from extreme scenarios - from negative to positive. We are positive about the Hong Kong market towards the end of the year, in particular sectors negatively affected by Trump foreign policies, e.g. Huawei suppliers and related stocks, China semiconductor sector and China Internet names. Key risks include the uncertain political condition in the US, rising number of pandemic cases, deteriorating economic numbers in the US.
