(Bloomberg) -- Goldman Sachs Group Inc. strategists expect Chinese stocks to rise in the two to three months following the US presidential election, although they warn there may be a kneejerk reaction if former President Donald Trump wins.
“China equities did not sell off in the past two weeks amid Trump risk repricing, which is indicative of its resilience,” according to a trading desk note dated Wednesday. “We believe China risk sentiment is likely to trade bullish post-election.”
Global investors are bracing for volatility as the election nears, with fears of a possible trade war flare-up in the event of a Trump win fueling a shift from risk assets. But an economic stimulus blitz from Beijing has created a so-called “policy put,” protecting investors in Chinese stocks against declines, according to the Goldman note.
“Overall, the policy put is likely strong and continuous, especially under a Trump win scenario,” the strategists said.
China’s onshore CSI 300 Index has jumped around 23% since a September low, making it one of the best performing major indexes in the world over the past three months, shows Bloomberg-compiled data.
The Goldman strategists recommend betting on yuan weakness over the timeframe of about a year if Trump wins, allowing traders to profit from possible tariff announcements. If Harris wins, they should instead make shorter-term bets on a rebound in the currency, the note said.
A major consideration for yuan traders is whether China’s central bank will draw a line following a sharp move in the currency. Goldman thinks the People’s Bank of China will defend the currency if it weakens towards 7.35 per dollar this year. The onshore yuan is currently trading at around 7.13 per dollar.
In the rates market, Goldman predicts longer-dated yields will fall faster than their shorter-term equivalents if Trump wins, in a so-called risk-off curve flattening move, while a Harris victory would have an opposite steepening effect. Goldman continues to see value in five-year Chinese government bonds.
Read: Goldman Says Traders Too Worried About Delays to US Vote Result
--With assistance from Cormac Mullen.
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