Investing.com-- Goldman Sachs (NYSE:GS) analysts said that the possibility of a Donald Trump presidency presented potential headwinds for Chinese equities, especially if the Republican nominee follows through with his threats of steep tariffs.
GS analysts said a “harsh case scenario” was if the 60% tariffs proposed by Trump on Chinese goods were to be fully implemented without any meaningful policies or measures to offset their impact.
GS expects Chinese export-oriented sectors, particularly those sensitive to the U.S., to suffer, with technology hardware, capital goods, transportation and durables to lag.
On the other hand, GS sees consumer tech, consumer services and energy as better placed in the event of a Trump presidency.
But GS kept its baseline earnings, valuations and fair value forecasts unchanged on China, citing immediate uncertainty over just what the White House’s stance will be towards China.
GS warned that Chinese equities had so far demonstrated an inverse correlation with Trump’s presidential odds, with any polling presenting a favorable outlook for the Republican nominee to dent Chinese markets.
Historical data showed positive returns from Chinese defensives such as energy and other “old-economy cyclicals,” while tech and consumer stocks suffered.
Corporate profits are also expected to be a “key transmission” for Trump’s policy effects, given that his 60% proposed tariff is substantially higher than the current 11%, GS said. The brokerage forecast an aggregate earnings impact of 13% on Chinese exporters to the U.S.
China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes were nursing steep losses through July, falling to five month lows amid growing uncertainty over the U.S. presidential election.
Trump holds a slight lead over Democratic frontrunner Kamala Harris, who was only recently endorsed by President Joe Biden after he pulled out of the race.
But recent polls showed Harris was catching up with Trump, polling better than Biden did against the former president.
A poll by the New York Times on Thursday showed a tight race ahead.