Lorraine Tan, director of equity research at Morningstar, and Kai Wang, senior equity analyst at Morningstar expect increasing measures to control China’s manufacturing dominance regardless of the outcome of the US presidential elections.
“A victory by either President Trump or Vice President Kamala Harris is unlikely to change the direction of US policy towards China,” Tan and Wang note.
Tan and Wang note that the difference is that a Trump administration is likely to implement more tariffs and increase the number of entities on the banned entities and, or banned securities list at a faster pace.
They also expect his usual “bombastic rhetoric” which could lead to market volatility.
China’s equity prices have weakened due to domestic economic issues, with Tan and Wang expecting some divergence in performance if China’s domestic consumption recovers following the government’s stimulus measures.
China’s GDP growth may improve compared to the slower global GDP growth and with China companies trading around 11% below Morningstar’s fair values on average as of Oct 28, with attractive opportunities in the consumer and communication services sector.
See also: What Trump 2.0 means for investors
In June, Biden’s administration introduced rules to restrict US investments in China related to artificial intelligence (AI), chips and quantum computing on national security grounds.
Tan and Wang note that they “would not be surprised to see the Trump administration further broaden the scope of such policies.”
“To note, President Trump did sign an executive order banning US companies from any transaction with ByteDance and its subsidiaries”, Tan and Wang add, “a subsequent bill was signed by both Congress and President Biden earlier this year although President Trump appears to have backed down on his original view.”
While President Trump is more likely to use tariffs as a policy tool, Tan and Wang note that Vice President Harris would be similar to President Biden in keeping tariffs as a targeted approach.
Nonetheless, they note that companies with global production bases in China have moved out or set up production elsewhere.
Morningstar’s US economist Preston Caldwell expects US GDP growth to be negatively impacted if tariffs are raised, estimating a negative probability-weighted impact on US GDP growth of 0.5% if Trump imposes a 60% tariff on China imports.
However, Tan and Wang recognise that global investors remain sidelined in investing in China due to policy risks. As such, a Trump win could further dampen demand for Chinese equities and limit advancement in share prices due to selling pressure by US investors.
Despite this, Tan and Wang recommend that investors focus on Chinese companies with domestic exposure as they still see economic growth, albeit at a weaker 3% to 5%.
Sectors such as gaming, restaurants, and certain consumer non-cyclical names that are less reliant on exports and manufacturing are likely to face lower long-term geopolitical risks.
Tan and Wang have identified some “high-quality wide moat names that are still undervalued and trading in four-star territory” including Tencent, Kweichow Moutai and Yum China.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
The communications services, consumer cyclical, consumer defensive and energy sectors are still trading at average attractive discounts to Morningstar’s fair value estimates of at least 20%.
At the current stage, Tan and Wang are of the opinion that the China government requires more detailed policy measures to promote sustained recovery in consumer confidence.
Tan and Wang state that their base case view is for a gradual improvement in the economy from 2H2025, preferring to be selective in their investment allocation towards names that can offer low-budget services or goods as Chinese consumers reduce their consumption habits.
“We believe travel will still garner a high share of consumer budget in the next year. Our preferred picks in regard to the trade down and travel are Jiumaojiu and Tongcheng, respectively,” Tan and Wang add.
Furthermore, Tan and Wang expect companies with exposure to economic recovery in China such as Japan factory automation companies and select consumer cyclical companies including Shiseido to benefit.
These companies present an alternative to investors seeking exposure to China growth without the geopolitical risk.
Impact of US presidential elections on Taiwan’s semiconductor industry and outlook on TSMC
A Trump win will lead to tariffs that negatively impact semiconductors and other electronic imports.
Phelix Lee, equity analyst at Morningstar, notes that it is possible Trump will halt the Chips Act-related disbursement to TSMC, this expansion may be redirected from the US back to Taiwan by diverting equipment installations.
On the other hand, a Harris administration could lead to antitrust investigations.
Lee notes that TSMC has changed its market share calculation method in a pre-emptive attempt to manage the antitrust risk.
Lee expects TSMC’s margin improvements after the Arizona factory launches can become a trigger for antitrust investigations, particularly if Intel reports poorer figures.
However, Harris may be more favourable to following through with the Chips Act, and Lee expects disbursements to be smoother and future agreements are more likely to include non-US manufacturers.
Regardless of the outcome, Lee notes that stances on Taiwan will be “closely watched” and a softening may trigger selloffs from time to time.
While updates to export controls are likely, Lee anticipates a more focused approach under a Harris administration.
Impact of US presidential elections on Japan’s financial sector
According to Michael Makdad, senior equity analyst at Morningstar, Japanese financial companies’ share prices may move significantly following the election outcome.
This mirrors the 2016 elections when Japanese bank shares rallied around 30% on the view that the Trump administration’s fiscal policies would increase long-term interest prices and make it easier for Japan to exit its long-running deflation.
This time, Makdad believes a Trump win would lead to the highest likelihood of volatility, followed by a close result with unclear outcome, while a clear Harris win might not affect Japanese financial share prices as much.
A clear Trump win could lead to a greater selloff in the Japanese yen, which Makdad believes is positive for Japanese bank share prices as an overly weak yen could increase pressure on the Bank of Japan to increase yen interest rates.
Impact of US presidential elections on China’s financial sector
Iris Tan, senior equity analyst at Morningstar, does not expect the US elections to have “material impact” on China’s financial market and the People’s Bank of China’s (PBOC) monetary policy in the long term.
However, in the near term, Tan notes a potential Trump administration is expected to add RMB depreciation pressure and PBOC is likely to cut interest rates to support the real economy.
Lower interest rates and RMB depreciation should benefit demand for insurance products onshore and offshore, Tan adds.
Tan notes that while it is a challenge to insurers’ investment performance if 10-year government yield declines from current record low levels, further downside is limited.
“For banks we think the near-term impact should not be material given Chinese policymakers should have sufficient tools to keep overall credit quality and net interest margin (NIM) largely stable, despite it being a short-term negative to the economy,” Tan adds.
Impact of US presidential elections on Chinese biotech companies
Yurou Zheng, equity analyst at Morningstar, notes that the Biosecure Act is a common ground between both parties.
While there may be some execution level uncertainties on how the Biosecure Act may be impacted by Medicare or Medicaid policies, Zheng notes reputation damages are certain.
A Harris administration may support more price cuts, while Zheng is of the opinion that a Trump administration will not.
Regardless of outcome, the reputational damage arises over uncertainty as to whether pharmaceutical companies that have contracts with Chinese biotech firms will be penalised for access to Medicaid or Medicare.
Zheng understands the speculations surrounding investing in other Asia contract development and manufacturing organisations (CDMO) such as India, Japan or South Korea.
While manufacturing can be easily substituted, drug development projects require more technology know-how and it could take more time for CDMO companies to step up.
Zheng is of the opinion that investors should focus on companies which possess strong R&D capabilities and are isolated from political rhetoric, such as innovative biotechnology, biopharmaceutical or medical devices.
