Chinese stocks and gold may rally on Trump winning

With only five weeks to go until the US presidential election, how the result would move the markets is one of the key factors to drive Chinese investors’ sentiment.

Who do you think will win the US election? 
Donald Trump

Why will he/she win?
Although Hillary Clinton had the upper hand in the first debate, the final result is likely to remain ferociously close. Donald Trump's voters are those who are unhappy with the current political mechanics, representing the opposition to the incumbent government. They will still support him to the end, despite media bias. On the other hand, Hillary Clinton is being seen as an old-school politician, whose supporters are partially female voters, and also she is trying to attract Bernie Sanders’ supporters, who failed in the democratic nominee campaign. 

The situation reminds me of the Brexit vote. Most people would have thought that the remain campaign had a significant advantage. However, the result brought an 'overturn effect' to the country and financial markets. The invisible power from weaker parties cannot be ignored.

According to an RCP average poll, Hillary Clinton’s electoral college votes are at 44.1%, while Mr Trump is at 40.9%. The voting spreads have become slightly wider since the first debate. 

Chinese stocks and gold may rally on Trump winning
With only five weeks to go until the US presidential election, one of the key factors is how the result would move the markets and drive investor sentiment. The debates have given signals to the market, and a risk-averse effect is likely to be driven by the uncertainty a Trump win would bring.

 

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Gold may rally on risk aversion and uncertainty if Trump is triumphant
Gold has fallen sharply following recent rumours of a Federal Reserve rate hike. I still believe gold will reverse its losses during the US election period. Since Hillary Clinton is slightly ahead at the moment, any signals in favour of Mr Trump will weigh more on market sentiment and prompt a risk-averse attitude in the markets. 

Looking at historical data, gold usually rallies on wins for the Republican party and tends to fall on wins for the Democratic party. Also, the incumbent party winning means fewer changes to current policies, which would be considered a more stable outlook to the country’s economy. Gold usually loses its appeal to investors if this happens. Therefore, if the Republican nominee, Mr Trump, ends up in the White House, we may see gold finding support and surging significantly.  

According to the technical charts, gold is now consolidating around the 1250 support level (200-day moving average). The current price is also near to the opening price on the day of the Brexit vote, before it surged by 5.33% to 1318.56. The Fibonacci retracement indicator suggests that gold may also find the lower support around 1211, and the yellow metal could rebound from either of these two potential supports during the US election campaign.

 

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What impact could the US election have on Chinese stock markets?
Chinese stock markets may not be affected directly by the US election, but an indirect impact is inevitable. Certainly the stock markets in the US and Europe will be facing a big shock if the result is not in favour of stability. If Mr Trump wins the election, markets will fall on uncertainty. However, this may shift investment assets to Chinese markets and other Asia-Pacific regions that are experiencing relatively stable political and economic conditions.

In the last two months, and following the EU referendum, the Hang Seng index rose by 4%, while the S&P 500 fell by 0.9%. We may see US stocks dropping further if the US election and concerns of imminent rate hikes weigh on investor sentiment.

On the other hand, the measures that Chinese authorities have taken to cool an overheated Chinese property market could also shift investor money to stock markets. From a technical analysis view, the Hang Seng has been consolidating above the key support of 23,200, well above the 50-day moving average. It could go higher along the uptrend and find the resistance at 24,600.

Back to US elections


CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

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