CICC: A Comprehensive Review of the Impact of the U.S. Midterm Elections on A-Share Industries

CICC: A Comprehensive Review of the Impact of the U.S. Midterm Elections on A-Share Industries CICC released a research report stating that the results of the U.S. midterm elections are clear, with the Democratic Party achieving a "sweep" of both the Senate and House of Representatives and regaining control of Congress. After the election results were announced, major markets in the U.S. and Europe first rose and then fell, with the U.S. technology sector coming under notable pressure. In Asia-Pacific markets, under the transmission of adjustment pressure across the global AI industrial chain, Japanese, South Korean, and Taiwan region stock indices saw relatively large declines. By contrast, A-shares and Hong Kong stocks showed notable overall resilience. From the perspective of impact mechanisms, the U.S. midterm elections affect relevant A-share industries mainly through four channels: geopolitical policy, trade policy, AI regulation and industrial policy in other areas, and the fiscal and monetary environment. CICC's main views are as follows: Democrats win comprehensively in the 2026 U.S. midterm elections The results of the U.S. midterm elections are clear, with the Democratic Party achieving a "sweep" of both the Senate and House of Representatives and regaining control of Congress. On November 3 local time, the United States held its midterm elections. At the federal level, according to the Associated Press, on the evening of November 3 and the early morning of November 4, the Democratic Party successively won control of the Senate and the House of Representatives; as of the morning of November 7 Beijing time, the Democratic Party was expected to secure at least 54 Senate seats (out of 100) and about 256 House seats (out of 435). At the state government level, the Democratic Party's governing map also showed relatively clear expansion. The latest Multistate statistics show that in this election the Democratic Party took governorships from the Republican Party in six states: Ohio, Georgia, Iowa, Nevada, Texas, and Alaska, including several traditional Republican strongholds and key U.S. hubs for energy, manufacturing, and technology. Overall, in this midterm election, the Democratic Party's coverage and advantages in victories at the federal and state levels exceeded market expectations. After the election, global stock markets fluctuated widely, the U.S. technology sector adjusted notably, and A-shares showed relative resilience After the election results were announced, major markets in the U.S. and Europe first rose and then fell, with the U.S. technology sector coming under clear pressure. After the Democratic Party won control of Congress, the market, on the one hand, had relatively positive expectations that it would check the Trump administration's geopolitical policy and fiscal expansion, control the risk of further escalation in the U.S.-Iran conflict, and ease upward pressure on U.S. Treasury yields; on the other hand, there were concerns that the Democratic Party might strengthen AI regulation at the federal and state levels and restrict data center construction, thereby dragging down industry progress and economic growth. In addition, the current AI theme lacks new model progress and new demand-side catalysts, and concerns arising from the previous earnings season about the pace of revenue realization and return on capital under high-intensity capital expenditure by cloud vendors. Amid multiple interwoven factors, the market's digestion of related expectations was accompanied by relatively notable volatility. In the U.S. stock market, major indices generally rose on November 4; on November 5 they turned to sharp declines, with the S&P 500/Nasdaq/Dow Jones falling by 4.4%/5.5%/3.4%, respectively, among which the AI industrial chain fell the most, and the Philadelphia Semiconductor Index dropped more than 12%; on November 6, a rebound in the AI chain drove the S&P 500 to close slightly higher. In Europe, on November 4 European markets rose in tandem with U.S. stocks, with major European indices gaining about 1.8%-2.2%, and on November 5-6 they pulled back somewhat but by less than U.S. stocks. In Asia-Pacific markets, under the transmission of adjustment pressure across the global AI industrial chain, Japanese, South Korean, and Taiwan region stock indices saw relatively large declines. On November 5-6, the Nikkei 225, KOSPI, and Taiwan region Weighted Index, which have relatively high exposure to the global AI industrial chain, fell for consecutive days, with cumulative declines of 7.6%/11.0%/7.6%, respectively, among which semiconductor leaders such as SK Hynix, Samsung Electronics, Tokyo Electron, and TSMC fell the most. By contrast, A-shares and Hong Kong stocks showed notable overall resilience. On November 4-5, reduced external uncertainty and strengthened "market stabilization" policies jointly supported a clear rebound in A-shares and Hong Kong stocks; on November 6, affected by the weak performance of overseas technology themes overnight, the hardware sectors in A-shares and Hong Kong stocks pulled back somewhat, with the ChiNext Index/STAR 50 falling 4.0% and 2.6%, respectively, that day, but the CSI 300 Index and Hang Seng Index fell only 1.4% and 1.3%, clearly less than the Japanese, South Korean, and Taiwan region markets. How will the landing of the U.S. midterm elections affect relevant A-share industries? From the perspective of impact timing, the impact of the U.S. midterm elections on A-shares is mainly reflected in the short term as valuation adjustments brought by U.S. policy expectations and market sentiment disturbances, while in the medium to long term it depends on the actual implementation of U.S. policy adjustments and their impact on industry fundamentals. As the new U.S. Congress and newly elected state governors gradually take office from late 2026 to early 2027, the related effects may gradually emerge. From the perspective of impact mechanisms, the U.S. midterm elections affect relevant A-share industries mainly through four channels: geopolitical policy, trade policy, AI regulation and industrial policy in other areas, and the fiscal and monetary environment. Combining the views of CICC macro and industry analysts, the firm believes that: 1) On geopolitical policy, the U.S.-Iran conflict pushing up oil prices was one of the important factors dragging down the Republican Party in the midterm elections. Under the combined effect of public opinion pressure facing the Trump administration and the institutional constraints formed by Democratic control of Congress, the risk of further escalation in the U.S.-Iran conflict may decrease, which may in the short term put some pressure on the valuations of A-share oil and gas and shipping sectors, but the sectors' subsequent performance still depends on policy implementation, progress in U.S.-Iran negotiations, and the actual evolution of the situation. 2) On trade policy, the Democratic Party tends to restrict the policy space for the Trump administration to impose unilateral tariffs and promote a more stable and predictable trade policy. Concerns about escalating global trade frictions with the United States may ease, but the China-U.S. trade environment still faces uncertainty, and subsequent attention is still needed on changes in the external environment for companies in outbound and export chains in industries such as automobiles and machinery equipment. 3) On the AI industry, both parties support the development of the U.S. AI industry, with differences mainly in regulatory intensity and policy implementation paths. The Democratic Party tends to strengthen safety regulation of frontier models and may constrain data center construction through state governments in areas such as electricity costs, tax incentives, and land use. However, relevant federal legislation is still subject to limits such as the Senate filibuster and presidential veto, and state governments also need to balance the economic benefits brought by data center investment against residents' energy costs, so the actual intensity of policy implementation still faces considerable uncertainty. For A-shares, short-term rising regulatory expectations may disturb expectations for U.S. AI capital expenditure, putting phased pressure on demand expectations in the overseas chain of AI hardware, but considering that the pace and extent of relevant policy implementation are not yet clear, and that the long-term development of the AI industry still depends on new industrial breakthroughs and investment returns, if the market initially overprices the impact of U.S. policy, then as the actual intensity of governance gradually becomes clear, capital expenditure expectations stabilize, or new technology and demand catalysts emerge, related overseas-chain targets may still be expected to see valuation repair. On the other hand, if overseas computing power investment slows phasedly, the domestic chain may gain a certain window to catch up, but supply chain constraints on the expansion of domestic computing power hardware still exist, and the ability of related companies to realize profits and the degree to which this matches valuations still need continuous verification. In new energy, the Democratic Party as a whole tends to support clean energy development and may promote the restoration of U.S. domestic new energy tax credit policies, which may to some extent benefit the export chain of A-share power equipment, but there is still uncertainty in trade-related policies. 4) On the fiscal and monetary environment, after the Democratic Party controls both chambers, the space for the Trump administration to further expand fiscal stimulus may be limited; if geopolitical tensions ease and inflationary pressure is relieved while the AI industry's boost to overall economic growth weakens, expectations for U.S. monetary tightening may ease marginally, which may support a recovery in gold prices and the precious metals sector. Combining the views of CICC industry analysts, the firm further elaborates on the impact on each sector. Specifically: Impact of geopolitical changes on relevant industries: the risk of conflict escalation eases marginally, and the center of oil prices and freight rates may decline in the medium term, but may remain high in the short term Oil, gas, and chemicals Under the baseline scenario of prolonged geopolitical friction, the recovery of oil production and supply still faces uncertainty and is expected to show pulse-like repair, and the center of oil prices may be difficult to fall quickly in the short term. CICC's commodities team forecasts that Brent oil prices may still struggle to fall below the high of US$90/barrel over the next 3-6 months [6]. For upstream oil and gas companies, profitability is still supported at current oil prices. For downstream petrochemical product segments, against the backdrop of an improved competitive landscape, some leading companies with independent pricing power have relatively good profit performance. Overall, if oil prices do not show a sustained sharp decline in the short to medium term, the sector's current profitability is expected to maintain some resilience, but next year's growth rate may be affected. Nonferrous metals In terms of the overall environment, traditional cyclical demand and supply constraints may still support the sector, but stricter U.S. AI regulation may suppress demand expectations for related metals; in terms of allocation, gold is preferred, while attention is also paid to incremental demand opportunities brought by U.S. new energy industry support policies. For gold, a marginal decline in geopolitical risk is expected to ease inflationary pressure, and stricter AI regulation may weaken U.S. economic growth expectations. If this strengthens market expectations for a slower pace of Federal Reserve rate hikes and lower real interest rates, it may support gold prices; however, if the situation reverses, gold prices may still fluctuate. At the same time, A-share gold stocks are generally reasonably valued at present, and domestic safe-haven sentiment may further provide room for valuation improvement. For copper and minor metals, AI-related demand currently still accounts for a relatively low share, and the direct impact of stricter regulation on actual demand is limited, mainly affecting long-term demand expectations; some minor metals have technology-valuation attributes and may be more noticeably disturbed. Transportation and infrastructure Expectations of an easing U.S.-Iran conflict put pressure on the valuation of the shipping sector in the short term, but the actual impact on industry fundamentals depends on whether the conflict can be resolved sustainably and effectively. If only a ceasefire agreement lacking enforceable constraints is reached, geopolitical conflict may still recur intermittently, and the center of freight rates will also remain above pre-conflict levels for a period of time, and industry prosperity is expected to remain at a relatively high level. AI regulatory policy: data center regulatory expectations disturb the overseas AI chain Technology hardware After the U.S. midterm elections, expectations of stricter AI regulation have risen, and combined with uncertainty in technological development and commercialization progress, this may push overseas AI capital expenditure expectations further downward, putting short-term pressure on the AI hardware industrial chain. Some core semiconductor manufacturing assets in A-shares had already experienced deep adjustments earlier. Short-term changes in North American data center construction expectations may alter the slope of hardware demand expectations, but there are currently no signs indicating that this is enough to change the long-term prosperity trend. Later, if positive catalysts emerge in the overseas AI industry trend, or domestic computing power supply constraints ease, industrial support policies land, and related corporate earnings gradually materialize, the AI hardware industrial chain may still be expected to welcome new investment opportunities. For the overseas chain, AI infrastructure construction faces short-term headwinds, but the medium- to long-term prosperity trend remains. At present, the overall balance sheets of large overseas cloud vendors remain relatively sound, and the risk of severe overcapacity and sharp price declines is relatively limited. Looking ahead, overseas cloud vendors are still expected to maintain active investment in 2027, supporting demand in the A-share overseas chain, with subsequent focus mainly on industrial catalysts brought by AI technology breakthroughs and application implementation. For the domestic chain, if overseas AI investment slows phasedly, it may provide a certain window for domestic computing power to catch up technologically. At present, domestic data center construction is driving strong demand for computing power chips and complete server units, and in the short term the contradiction remains on the supply side. Looking ahead, on the supply side, attention should be paid to the progress of capacity expansion implementation under policy support; on the demand side, attention should be paid to the sustainability of government computing power center construction. Software, telecom, and education Facing rising uncertainty in U.S. AI regulation, the model and application layers may show stronger resilience relative to AI hardware and computing power infrastructure. Overall, the development logic of domestic models and applications has not yet changed notably, but attention is still needed on computing power supply constraints and the progress of AI application commercialization. At the model level, if overseas regulatory constraints are substantially strengthened, this may bring relative benefits to domestic models. On the one hand, domestic models mainly rely on domestic computing power infrastructure, and the direct impact of a slowdown in U.S. data center construction on domestic model training and inference is relatively limited; on the other hand, if U.S. AI regulation substantially restricts its model R&D and computing power infrastructure expansion, it may slow the pace of U.S. AI industry development and create space for Chinese model vendors to narrow the technology gap. However, considering that U.S. model vendors may still deploy computing power in other regions, and that domestic model vendors still face constraints such as difficulty in obtaining high-end computing power cards, high rental costs, and insufficient supply of domestic chips, the degree to which the above relative benefits are realized still faces uncertainty. In addition, it is noted that after entering 3Q26, price competition among domestic models intensified, and the sector's overall revenue slowed. Looking ahead, the pace of next-generation model iteration remains key for domestic model vendors to maintain competitiveness and strive for market share. At the application level, the direction of AI's continued penetration in B-end and C-end has not changed notably, and commercialization progress and demand growth speed remain decisive factors for related industries globally. At the same time, given that downstream IT spending is highly correlated with the economic cycle, the performance of the A-share software sector has been relatively lackluster in recent quarters. Media In media, after the U.S. midterm elections, regulatory compliance requirements in areas such as game going global and AI film and television may be further raised; in the long term, the cultural game between China and the United States will continue, and cultural barriers facing domestic content going global may be difficult to quickly dissolve in the short term. In game going global, the regulatory focus may shift from "access barriers" to "refined operational compliance." Against the backdrop of compliance across the entire game development and operation process, leading companies with mature overseas data compliance frameworks, localized content operations, and legal teams may adapt to the rules faster and use compliance advantages to increase market share. In AI film and television, higher compliance requirements are mainly reflected in strengthened external regulatory constraints and accelerated domestic substitution. The pace of advancing AI regulatory legislation at the U.S. federal level has accelerated, which on the one hand compresses the compliance space for domestic companies to directly use overseas AI tools for large-scale content production, and on the other hand opens market space for domestic substitution of self-developed AI content tools and full-process AI production pipelines. New energy and trade policy: expectations for clean energy support and trade policy improve marginally, while benefits to the export chain still await verification by fundamentals Power equipment and new energy The market expects marginal improvement in U.S. new energy and trade policy after the midterm elections. A marginal easing of clean energy subsidy phase-down and import restriction policies is expected to improve overseas demand for China's power equipment and new energy industrial chain, but actual progress and pace still face considerable uncertainty. In grid equipment, demand for U.S. power infrastructure investment exists over the long term, and the domestic equipment supply gap is prominent. If import restriction policies are marginally relaxed, exports by Chinese power equipment companies may benefit. In solar PV, on the overseas demand side, U.S. power supply and demand are relatively tight, and the intensity of clean energy subsidy phase-down may ease, which is expected to drive demand growth for PV power stations, household energy storage, and inverters. The implementation method of import restrictions may be adjusted, and conditions for related Chinese products to enter the U.S. market may improve marginally; on the domestic supply side, policies are pushing some outdated capacity to exit, and industry supply may begin to contract from 2027, while the efficiency advantages of leading companies may become more prominent, and they may be the first to reduce or turn around losses. In energy storage, U.S. policies guiding accelerated localization of the clean energy industrial chain are expected to continue. Under the goals of lowering energy costs and controlling inflation, trade barriers may be marginally reduced, possibly opening more market space for China's energy storage and related equipment. In lithium batteries, the direction of localizing the U.S. lithium battery supply chain remains unchanged, but considering insufficient domestic industrial supporting capacity, the intensity of subsequent FCC (U.S. Federal Communications Commission) policy may be adjusted; the sector had previously adjusted by a relatively large margin, and combined with the recent marginal recovery in domestic energy storage policy, it may welcome rebound opportunities. Automobiles and mobility equipment The U.S. election results are expected to ease market concerns about further escalation of U.S. unilateral trade policy, which may be generally positive for China's auto sector, but U.S. restrictions on China's auto and intelligent driving sectors have strong bipartisan consensus, and the possibility of substantial short-term relaxation is not high. It is recommended to focus on the following three investment themes: First, parts going global. Uncertainty in trade policy declines marginally, which is conducive to restoring stability in the global auto supply chain. Attention should be paid to high-quality parts companies with overseas capacity layouts and global customer supporting capabilities. Second, the new energy industrial chain. The Democratic Party is relatively active on the new energy transition, and market expectations for U.S. new energy policy may improve marginally. Attention should be paid to battery and electrification parts suppliers with global competitiveness. Third, independent brands going global. The U.S. market is still difficult to break into in the short term, but expected improvement in the global trade environment is conducive to Chinese automakers advancing overseas layouts. Continue to be optimistic about independent brands leading in overseas channels, products, and localized capacity construction. Machinery and defense The impact of the U.S. midterm elections on various sub-sectors of machinery equipment is somewhat differentiated. First, stricter AI regulation may suppress expectations for U.S. AI infrastructure capital expenditure, putting some pressure on related industrial chain segments such as PCB equipment and gas turbines; second, the Democratic Party relatively supports clean energy development, and new energy equipment segments such as solar PV and wind power are expected to benefit; finally, if U.S. tariff policy tends toward stability or even gradually returns to normal, the machinery equipment export chain is expected to benefit, especially companies with greater exposure to U.S. business, which have higher growth elasticity. Pharmaceuticals The Democratic Party is relatively active on the development of the pharmaceutical industry. After the midterm elections, the implementation intensity of U.S. innovative drug price control policies may ease marginally, and improved industry R&D and commercialization expectations may be somewhat positive for China's innovative drugs going global and the CXO industrial chain. In innovative drugs, China's innovative drug R&D capabilities continue to improve, and opportunities to cooperate with large U.S. pharmaceutical companies through License-out (overseas rights licensing) are expected to increase, driving growth in related licensing revenue. In CXO, if U.S. innovative drug R&D and production activities improve, demand for drug R&D and production outsourcing is expected to increase, bringing incremental orders to Chinese CXO companies. On the risk side, the recently announced proposed rules related to the Comprehensive Outbound Investment National Security Act (COINS Act) may restrict some China-U.S. biomedical cross-border transactions, but the direct impact on the pure License-out model is currently relatively limited, and subsequent attention is still needed on whether the regulatory scope expands. Risks: repeated or escalated geopolitical conflicts; AI industry progress falling short of expectations; changes in U.S. AI regulation, new energy industry policy, and trade policy exceeding expectations; changes in Federal Reserve monetary policy and global liquidity exceeding expectations.