With high volatility in the stock and bond markets, the temporary suspension of the bull market, how will the "Trump trade" discussed by public funds affect the global and Chinese markets?

On November 6th, the dust settled on the U.S. election. Despite the previous "Trump trade" expectations in the market, the major event of the "shoe dropping" still brought a high level of uncertainty to the market. In terms of Chinese assets, the bull market in stocks and bonds took a temporary break for two consecutive days. Yesterday, A-shares rose throughout the day before falling back, with the ChiNext Index leading the decline among the three major indexes. The BSE 50 Index rose over 7% at one point during the day to hit a new historical high. It is worth noting that the total turnover in the Shanghai and Shenzhen markets reached 2.56 trillion yuan for the entire day, breaking the trillion mark for 26 consecutive trading days and setting a new record for A-shares in terms of consecutive trillion-yuan turnover since mid-July 2015. As for the Hong Kong stock market, the Hang Seng Index fell by 2.23%, while the Hang Seng Tech Index fell by 2.54%. However, the inflow of funds from the south was aggressive, with a turnover of 102.646 billion Hong Kong dollars on the 6th, with a net inflow of approximately 21.487 billion Hong Kong dollars. In terms of global asset performance, the U.S. dollar, U.S. bonds, and cryptocurrencies surged, while commodities such as crude oil and gold weakened. After Trump is elected president, how will his policy proposals in finance, trade, immigration, energy, and foreign relations affect the global economy? What adjustments need to be made in asset allocation? What opportunities and challenges are there for the A-share market? Several fund companies provide the latest analysis. Trump may continue his tax reduction policies next year JP Morgan Asset Management believes that after Trump is elected president, in terms of fiscal policy, he may continue with his tax reduction measures implemented in 2017 and expand the scope of tax cuts. All of these measures are popular and may not be truly obstructed even if the Democratic Party controls the House of Representatives. Therefore, the U.S. may eventually implement an expansionary budget. "Tax cuts may be passed in the Senate as part of the federal budget and reconciliation bill next summer, so U.S. businesses and households may not immediately receive tax cuts. The intensity of fiscal stimulus may be greater after 2026." JP Morgan Asset Management believes, however, that tariffs may be imposed sooner. According to the U.S. Congressional Budget Office, if all the tax cuts supported by Trump in 2017 are extended, the government deficit over the next decade may rise from around $2 trillion to $4 trillion. If Trump fulfills his other promises by raising tariffs to support these commitments, the government debt-to-GDP ratio may rise to about 144% of GDP. This is also one of the reasons for the rise in long-term interest rates in the U.S. Huabao Fund also stated that in terms of policy, referencing Trump's policy directions from 2017 to 2020, Trump's policies in the next four years may push for "reducing government spending + increasing tariffs + lowering tax rates + monetary easing + supporting the reshoring of manufacturing," while also promoting a "smaller government." In terms of tariffs, in the last term, Trump raised tariffs on China from less than 10% to nearly 20%, and future tariffs may move towards comprehensive tariffs (up to 20%) for all countries, while tariffs on China may further increase. In terms of industries, support for traditional manufacturing such as automobiles, pharmaceuticals, and energy may continue. In view of the above policies, Huabao Fund further predicts that the U.S. economy may face a combination of "monetary easing + moderate prosperity + declining inflation" in the short term. After Trump returns to the White House, he may first establish a government efficiency audit agency to reduce government spending before implementing tax and tariff policies. This may temporarily slow down the U.S. economic growth in the short term, but it may help further lower inflation. In terms of currency, the Federal Reserve is more likely to further lower interest rates at the beginning of next year during a period of declining inflation, making the monetary environment more accommodative. However, in the medium to long term, under the combination of "tax cuts + easing," there is limited downside risk to the U.S. economy, and the economy may start to accelerate again in the second half of next year, while tariffs and the expulsion of illegal immigrants may subsequently increase inflation. Therefore, there may be a risk of re-inflation in the fourth quarter of next year or early 2026, affecting the Federal Reserve's monetary policy. Public offerings have different views on U.S. stocks How will the "Trump trade" affect the future trends of global assets? There are different opinions among institutions. JP Morgan Asset Management believes that given the large previous gains in the U.S. stock market, investors may need to be more cautious. When Trump won the election in 2016, most investors believed that the U.S. stock market would fall. This time, however, the market consensus is that the U.S. stock market will not fall. It is still difficult to determine how Trump's future policies will unfold, so the market may be entering a more tumultuous period. In this situation, investors need to remain cautious and rely on diversified portfolios to control volatility. Specifically, U.S. growth stocks continue to be a focus for investors. There are still some differences in terms of technology regulation, with uncertainties in the direction and manner of regulation. Although the catalyst for significant volatility in large tech stocks has not yet appeared in the short term, given the high valuations, there is a high probability of change in the market. Based on the above views, investors in U.S. stocks may need to focus on sectors other than technology. The commodity market may be directly affected by tariff and trade risks. If global economic growth slows down, oil prices may face pressure on the demand side. Trump's support for traditional energy policies may also boost U.S. oil production, which could subsequently suppress oil prices. Gold may continue to play a role in portfolios as a hedge and diversification asset, and may continue to attract attention in an environment of rising geopolitical risks. Huabao Fund, on the other hand, believes that if the Republicans sweep both houses of Congress, the market will welcome a strong "Trump trade." U.S. stocks, the U.S. dollar index, U.S. bond yields, and cryptocurrencies might all rise. Since institutional investors generally reduced their positions and avoided risks before this year's election, subsequent increases may help U.S. stocks experience a year-end rally. U.S. mid and small-cap sectors, which have lagged behind this year, may perform better than large-cap stocks in anticipation of tax cuts. With the vision of Trump supporting the reshoring of manufacturing, cyclical stocks in the U.S. may also perform well. In a small probability scenario, if the Republicans fail to control the House of Representatives, tax reduction policies that require congressional approval may be forced to be postponed. At the same time, the U.S. will face a debt ceiling issue again in January next year, and a fiscal crisis may cause U.S. stocks to fall and U.S. bond yields to rise, speeding up the new government's imposition of tariffs and causing inflation.Upside risks are increasing and limiting the Federal Reserve's monetary policy, leading to downside risks in the market.The A-share allocation direction focuses on autonomy and controllability Returning to A-shares and H-shares, the market has shown adjustments during the US election process. In the view of institutions, A-share and H-share investors can continue to maintain a relatively optimistic outlook on the market prospects in the medium term, without significant swings in confidence due to the large fluctuations in the short-term market. Regarding the adjustments, some institutions pointed out that Trump's trade and tariff policy may put pressure on China's exports, which could transmit to domestic income and corporate profits. However, since 2017, with the diversification of global supply chains, the proportion of direct exports to China in the US market has decreased from 22% to 17%, and the impact of tariffs may be smaller than during the 2018 trade friction period. The prospects of the Chinese market depend more on the response to future domestic policies. Morgan Asset Management believes that in recent years, China's new economy industry has experienced a clearing process on the supply side, and capital expenditure and cost reduction have reached the end of the cycle. If more effective fiscal and monetary policies are proposed in the future, it should help restore corporate profits and drive the market back up. On the other hand, for investors with lower risk preferences, they can still focus on high-dividend stocks, banks, energy and other assets. Huabao Fund stated that in order to avoid the sudden impact of Trump's tariff policy on China's exports, it is necessary to avoid excessive reliance on US export industry chain targets. However, due to shrinking external demand, the emphasis in the domestic market will be on stimulating domestic demand, and consumption may reach unprecedented levels in fiscal stimulus. Strengthening domestic demand, policy directions such as deleveraging and stabilizing the housing market are expected to restore market confidence. If future policies lead to a marginal improvement in economic data, the A-share market is expected to continue its upward trend, and the focus on domestic demand is worth noting. In addition, during Trump's new term, there may be increased investment in the direction of independent and controllable technology domestically, leading to opportunities for growth. When the US imposed tariffs on China in 2018, industries such as national defense military aerospace, insurance, telecommunications, banking, and other sectors that are independent, controllable and stable performed well. In the market volatility caused by tariffs, these industries can maintain relatively stable and advantageous positions. Jinying Fund also stated that until the policy trend is confirmed, the direction of independent and controllable under the narrative logic of China-US relations and valuation logic still remains a relatively strong logic with high levels of fund participation, making it more likely to form a strong continuation pattern, specifically military industry, semiconductors, and innovation. Since the 924 policy, the market has experienced volatility but has largely established a slow bullish trend. Caitong Fund stated that at the policy level, the recent heavy-weight meetings have raised optimistic expectations for the fiscal policy soon to be introduced by the government, marking the likelihood of a new start for various industries when the US election is settled; at the market level, the sharp increase in trading volume of broad-based indexes in the recent period reflects an increase in market participants' activity, confidence, and optimistic expectations for future market trends. The intensive issuance of the CSI A500 ETF will bring new incremental funds to the market, further boosting market sentiment. According to Zhongou Fund, the divergence between the increasing sentiment and policy expectations and the downward trend in short-term high-frequency data has led trading funds to actively allocate high-elasticity sectors (such as technology and innovation), but value-based funds remain cautious. If the fundamentals do not improve in the short and medium term, the degree of differentiation between trading and value-based sectors will continue to intensify. This article is reprinted from CaiLian News, GMTEight Editor: Li Fu.