Shortly after Donald Trump was sworn into office, he signed an executive order to begin rolling back the Affordable Care Act, also known as Obamacare.
The global investor community is now keeping a close watch as to whether the new US president will deliver on his other campaign pledges, and trying to assess the potential political and economic implications of such moves.
Last year, US equities hit new highs after Trump’s election victory as investors hoped for policy initiatives such as tax cuts, greater deregulation and increased infrastructure spending.
The dollar, meanwhile, strengthened amid speculation that a spending spree would spur inflation.
The greenback rally triggered capital outflows from emerging markets, including China.
But now some investors are beginning to feel that the market hype surrounding the Trump presidency may have been overdone and that it is time to readjust the portfolio strategy.
As a matter of fact, some global investors have already switched capital away from the US in recent days, giving some vigor back to other markets.
Last week, fund inflows into China, Hong Kong and other Asian markets picked up a bit.
Now, if US equities lose their glitter this year, there is good possibility that China stocks, among other assets, could be in favor again.
It’s still too early to jump into any conclusion whether Trump would be able to fully fulfill his promises. However, his words and actions are set to bring more volatility to the financial markets.
The Trump factor has implications for at least two sectors when it comes to Chinese stock picks.
Firstly, Trump has shown a hostile stance against China. Also, he has appointed several hawkish cabinet members. For that reason, I feel military-related stocks should be in favor.
China will need to enhance its military power if it wants bigger say in future political and economic negotiations.
Chinese President Xi Jinping will head a new commission overseeing joint military and civilian development, another factor that should spur interest in Chinese defense-related firms.
Given this situation, stocks such as AviChina Industry & Technology Co (02357.HK) and CSSC Offshore and Marine Engineering Group Co (00317.HK) could outperform in Hong Kong.
Meanwhile, Chinese exporters are companies that investors should avoid.
Under the Trump administration, firms heavily dependent on the US market are likely to bear the brunt of any trade war between the world’s two largest economies.
Investors should reduce exposure to export-related firms and shift focus to domestic demand-oriented names in sectors such as property, automobiles, infrastructure, internet, and high-speed rail.
This article appeared in the Hong Kong Economic Journal on Jan. 24
Translation by Julie Zhu with additional reporting
[Chinese version 中文版]
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