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特朗普胜选如何影响全球资产?

How does Trump's election victory affect global assets?

CICC strategy ·  09:06

Source: China International Capital Corporation Strategy. Author: Wang Hanfeng, Liu Gang et al. After a significant sell-off in the early part of last week, overseas Chinese capital stocks rebounded strongly in the middle of the week. At the beginning of the week, investors' sentiment deteriorated further due to multiple domestic and international factors. Under the pressure of external fund outflows, there was an impact on liquidity in the market and the market performance plummeted. Fortunately, this liquidity shock eased somewhat after policy stabilization signals on Wednesday, and the market subsequently showed an almost linear upward trend. After the roller coaster market last week, we tend to believe that the panic-style rapid sale in the early stage may be temporarily over, and the market may gradually enter a consolidation and bottoming period. However, the recovery of emotions still needs some time, mainly due to: 1) The outflow of overseas funds, especially the reduction of large-scale sovereign funds, is difficult to see a significant reversal in the short term; 2) The short selling ratio in the market is still high; 3) The geopolitical tensions, Sino-US relations, epidemic, domestic policies, and uncertainties in regulation have not yet completely weakened. Therefore, looking ahead, whether the market rebound can continue depends on: 1) Whether positive policy signals can be specifically implemented; 2) Whether external uncertainties will be alleviated.
Authors: Li Zhaoyang, Xiao Qingqu, Bo Tao

Trump wins the new US presidential election

According to statistics from mainstream media such as AP in the United States, Trump won the presidential election on November 6 Beijing time. Before the election day, the poll results of the two candidates were very close, with a minimal gap in support in some key swing states.

Chart: Poll results remained tight until election day

Data source: RCP, Research Department of China International Capital Corporation.

However, on the election day, former President Trump successfully won almost all swing states with a significant lead, surpassing the Democratic Party's presidential candidate Harris to win. In the congressional elections, the Republican Party has won the Senate, and the current vote count shows a high probability of winning the House of Representatives, achieving a Republican "sweep."

Chart: Trump eventually wins with a significant advantage

Information Source: RCP, China International Capital Corporation Research Department * As of 10:00 PM on November 6, 2024, Beijing time

Economic Insights: Short-term boost in optimistic expectations, significant mid-term stagflation risks.

Trump's main policy proposals include imposing tariffs on foreign imports, tax cuts domestically, expelling illegal immigrants, and relaxing financial regulations, the three points with potentially the greatest impact on economic operations are as follows:

1) Domestic tax cuts are the strongest policy to support economic growth in the election manifesto, but the implementation may be delayed, creating high debt pressure and lowering the long-term economic growth prospects.

The Budget Model of the University of Pennsylvania predicts that if Trump permanently extends the Tax Cuts and Jobs Act (TCJA), it will increase the US GDP by 0.3 percentage points over the next decade but will increase the US fiscal deficit by approximately $4 trillion. This leads to a significant increase in the risk of US debt imbalance. More importantly, the stimulative effects of tax cuts on growth may not be immediately realized.

2) Tariff policies could be implemented more quickly, potentially exerting significant stagflation pressure on the economy. During his campaign, Trump claimed to impose a 60% comprehensive tariff on China and a 10% comprehensive tariff on other countries. This policy may be implemented relatively quickly. During the 2018 US-China trade war, it took nearly 11 months from initiating the investigation to officially imposing tariffs. However, if Trump is re-elected, he can continue to use the conclusions of previous investigations from his previous term and conditions for imposing tariffs could be implemented in a relatively short period of time. We believe that if this policy is implemented quickly, it will have a significant "stagflation" effect on the economy.

Chart: Overseas institutions' calculation of the impact of Trump's tariffs on the US economic growth and inflation in 2025.

Source of Information: Public sources, China International Capital Corporation Research Department

Chart: PIIE estimates the impact of US tariffs on growth and inflation.

Source: https://www.piie.com/research/piie-charts/2024/trumps-economic-policies-could-stoke-inflat

3) Expelling illegal immigrants can also have a similar 'stagflation' effect, but the uncertainty of policy implementation is high. According to the estimate of the US Congressional Budget Office, since the end of 2020, more than 9 million people have immigrated to the US through legal and illegal channels, becoming an important force in increasing labor market supply after the epidemic. If illegal immigrants are expelled, it will reduce labor market supply, push up wage inflation. Rising wages will lead to increased production costs, suppressing economic growth.

Chart: PIIE estimates the impact of expelling illegal immigrants from the US on growth and inflation.

Source: https://www.piie.com/research/piie-charts/2024/trumps-economic-policies-could-stoke-inflat

However, due to the large number of illegal immigrants, the difficulty of widespread expulsion is relatively high, and the uncertainty of the policy's implementation progress is also relatively high.

In summary, the tax reduction policy in Trump's governing agenda to support economic growth may not take effect quickly, but the tariff policy that leads to 'stagflation' pressure may progress more quickly under certain conditions. In 2025, the economy already has downward pressure, and the risk of the economy returning to stagflation is significantly increased against this background.

Policy Implications: The uncertainty of the Fed's interest rate cut path has significantly risen.

Before the results of the US presidential election were announced, our base scenario was for US inflation to decline, with growth first declining and then rising. This round of Fed interest rate cuts ranged from 200-300 basis points, but the risk of stagflation caused by "Trump's sweeping" significantly increased the uncertainty of the rate cut path. If US inflation rebounds significantly in 2025, we believe the Fed may slow down or pause the rate cuts in 2025, and even consider the possibility of raising rates. In fact, the market has already started to factor in this possibility: although the Fed's September dot plot shows rate cuts of 100 basis points each in 2025 and 2026, the federal futures market indicates that the rate cut cycle will end in June 2025, with a cumulative cut of 150 basis points to 3.5%.

Chart: Futures market expects the Fed rate cut cycle to end around June next year.

Source: FedWatchTool, China International Capital Corporation Research Department

It is noteworthy that in 2025, the Trump administration's policies have a more noticeable impact on pushing up inflation, but if the Fed tightens monetary policy to hedge against this, it may mitigate the upward pressure on inflation, avoid secondary inflation, but at the cost of higher policy rates. After 2025, the inflationary effect of Trump's policies weakens, and the drag on growth gradually emerges, possibly creating conditions for the Fed to accelerate rate cuts again.

Chart: Impact estimation of different policy combinations on US growth and inflation after Trump's election

Source: PIIE, China International Capital Corporation Research Department *Note: The "High scenario" assumes the expulsion of 8.3 million undocumented workers, a 10% tariff increase on all US imports, a 60% tariff increase on Chinese imports, and trade retaliation by all trading partners including China; the independence of the Fed is weakened. The "Low scenario" assumes the same tariffs as the "High scenario," but other countries do not retaliate, 1.3 million undocumented workers are expelled, and the independence of the Fed is weakened.

Asset implications: Underweight US bonds, overweight US stocks, maintain overweight gold and underweight commodities, Chinese assets depend on policy responses.

Since peaking at 5% in October 2023, US bond yields have entered a volatile downward phase.

Chart: US 10-year bond yield shook down after reaching 5% in October last year.

Source: Wind, China International Capital Corporation Research Department.

Considering the approaching rate cut cycle, the possibility of a divided US Congress after the presidential election, uncertain significant fiscal expansion, and higher yield returns, we previously recommended overweighting US bonds for good returns.

However, after the probability of a 'Trump sweep' increased, the market outlook changed significantly: second inflation risk raised terminal rate expectations, fiscal imbalance risk raised long-term term premium. If the Republican Party confirms control of both houses, we recommend exiting long US bond trades. Tactically, as the market has already priced in many 'Trump sweep' expectations since September, the 10-year bond rate has risen by nearly 90 basis points, short positions may see profit-taking. There is a possibility of interest rates rising and falling due to short-term market volatility. We recommend gradually reducing holdings of US bonds. After Trump's victory eliminates election uncertainty, fiscal expansion expectations rise, market trades risk-on, benefiting short-term stock performance. But the implementation of Trump's tax reduction policy may have to wait until 2026. If tariffs and immigration policy are implemented first in 2025, it may increase stagflation risks. Therefore, the uncertainty of overseas stocks remains relatively high in the medium term. Hence, we recommend increasing allocation to overseas stocks in the short term and reducing it opportunistically in the medium term.

Stagflation risks, along with further imbalances in US debt, undermining the credibility of the US dollar system provide sustained support for gold. We maintain an overweight position in gold.

Trump's opposition to green transformation, increasing oil and gas supply, and the short-term global economy still in a downward trend, suppressing commodity demand. Therefore, we maintain a underweight position in copper, oil, and other commodities.

For Chinese assets, though trade protection and technological restrictions may cause short-term disruptions, the medium to long-term performance of assets mainly depends on domestic economic fundamentals and policy responses. Since September, the 'stabilizing growth' policy has been significantly strengthened, making us not pessimistic about the prospects of Chinese assets, and we recommend focusing on domestic demand-related sectors and strategic emerging industries.

Editor/rice

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