To The Moon

As October rolls on, the U.S. presidential race is heading in a new direction. The once-booming “Trump Trade” from July is resurfacing, with polls showing Trump taking a clear lead. Markets are already starting to price in the possibility of his victory.

So, if Trump wins, what will happen to global capital markets, commodities, bonds, and especially Hong Kong and mainland Chinese stocks?

Trump and Harris have sharply different views on critical issues such as inflation, energy, manufacturing, taxation, immigration, and foreign policy. Let's dive into the key sectors:

1.Oil Prices

On energy, Trump wants to scrap Biden’s electric vehicle policy and ease regulations on oil and gas. He sees the climate change debate as exaggerated by environmentalists.

Harris advocates for stricter regulations on traditional energy and greater support for renewables. If Trump takes office, expect oil prices to rise, while a Harris victory would likely keep them under pressure.

2.Immigration

Trump aims to stop immigration, tighten border security, and deport illegal immigrants. Harris also supports border control but promotes legal immigration as a source of vitality for America.

It’s ironic since both Trump and Elon Musk, major figures of their time, descend from immigrant backgrounds (Slovenia and South Africa). If immigration had been blocked earlier, these debates about “Making America Great Again” might never have happened!

3.Tax Policy

Trump is all for corporate tax cuts, a policy that fueled the stock market rally in 2016-2018. His plan boosts profits, employment, and stimulates the economy through multiplier effects.

Meanwhile, Harris wants to raise taxes on the wealthy and offer relief to the middle class and lower-income groups. Tax cuts directly influence company profits and stock market performance, so another round of Trump cuts could be a huge boost to U.S. equities.

4.Military and Foreign Affairs

Trump advocates for peace and has promised to end the Russia-Ukraine war. His isolationist "small yard, high walls" approach extends to military and foreign policy, threatening NATO exits and quitting the Iran nuclear deal during his last term.

In contrast, Democrats prefer maintaining the status quo. U.S. defense contractors, generally supportive of the Democrats, may feel the pinch under Trump as the chances of global military conflicts decrease, but peace might not come as easily as it sounds.

5.Impact on China’s Stock Market

In the short term, a Trump victory could pressure China's markets. U.S. bond yields and the dollar would strengthen, narrowing the room for China’s monetary policy. Liquidity and valuations for both the Hong Kong and A-share markets might feel the squeeze.

This scenario played out in 2017, as Trump's win combined with four Fed rate hikes hit Hong Kong and mainland Chinese stocks hard. Blue chips held up, but growth and tech stocks tanked.

In the long run, though, Trump’s goal of reviving the U.S. economy of the 1980s and 1990s is unlikely to succeed without China. His business instincts mean he’s unlikely to completely cut ties with China, especially if the profits are attractive. This could help revive the Chinese economy in the medium to long term.

Between 2019 and early 2021, after the Fed halted rate hikes and China reopened its monetary policy space, China experienced a two-and-a-half-year bull market, led by tech and small-cap stocks. If Trump wins, a similar dynamic could emerge once again.