The global financial market is closely watching the upcoming U.S. presidential election, with Chinese investors also attuned to its potential impacts. Goldman Sachs strategists anticipate a rise in Chinese stocks within two to three months following the election. However, they caution that a victory for former President Trump could trigger market volatility.
According to a recent Goldman Sachs report, during the recent period of repricing Trump-related risks, Chinese stocks demonstrated resilience without significant sell-offs, indicating potential bullish sentiment post-election. As the election approaches, investors worldwide are bracing for increased volatility. Concerns about a potential trade war if Trump wins are prompting a shift from riskier assets. Despite this, China's economic stimulus measures, termed as "policy put options," are expected to offer protection to Chinese stock investors against downturns.
Overall, this policy support is likely to be robust and sustained, particularly if Trump wins. Notably, the CSI 300 Index, covering major stocks listed in Shanghai and Shenzhen, has surged approximately 23% from its September lows, marking it as one of the best-performing major indices globally over the past three months.
Goldman Sachs has previously expressed optimism about Chinese equities, citing major favorable policies from the Chinese government. As of October 5, the bank upgraded its rating on Chinese stocks to "overweight," projecting a further 15%-20% increase upon the implementation of these policies.
Analysts note that Chinese stock valuations remain below historical averages, with potential for improved returns and low global investor positioning. Goldman has raised the target price for MSCI China from 66 to 84, and for the CSI 300 Index from 4000 to 4600 points.
In the bond market, Goldman Sachs predicts that a Trump victory would cause a flattening yield curve, with long-term bond yields dropping faster than short-term yields, while a Biden victory would have the opposite steepening effect. The bank remains optimistic about the value of five-year Chinese government bonds.
As the U.S. election countdown continues, China is seen as a safe haven for investors. Many fund managers are placing bets on the Chinese stock market, expecting gains regardless of the election's outcome. Emerging market funds have been increasing their exposure to China and North Asia over the past month, anticipating a surge once election uncertainties are resolved.
Goldman's insights highlight China's market as an attractive refuge due to its domestic driving factors and lower correlation with global asset movements.
