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China investors expect heavy tariff, tech tensions under

Trump

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Onshore yuan set for steepest daily fall since June 2023

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HK stocks fall more, with technology firms at the fore

(Updates prices)

By Summer Zhen and Jiaxing Li

HONG KONG/SHANGHAI, Nov 6 (Reuters) - China's yuan and

stock markets fell sharply on Wednesday as the prospect of

another Donald Trump presidency and Republican control of U.S.

Congress risked heightened tensions over trade and technology.

By the time Chinese markets closed, Trump had claimed

victory over Democrat Kamala Harris in the tight U.S.

presidential race.

U.S. stock futures jumped and the dollar rose across

the board after Republicans won a clear U.S. Senate majority

although it won't be clear for some time which party will win

control of the House of Representatives.

China's blue-chip CSI300 Index fell 0.5%, while

Hong Kong's benchmark Hang Seng, which is more indicative

of foreign investor sentiment, fell 2.3%.

The Hang Seng China Enterprises Index fell 2.6%.

Hong Kong-listed China tech stocks declined

broadly, with e-commerce giant JD.com ( JD ) and Alibaba ( BABA )

down 4% each.

The U.S. presidential election will have a meaningful impact

on China's economy and capital markets. As part of his pitch to

boost American manufacturing, Trump had promised voters he will

impose tariffs of 60% or more on goods from China.

"Right now, the markets are focusing narrowly on the

prospect of tariffs because it is the easiest lever to pull

directly under a presidential executive order, but we've seen

between 2016-20 other levers that can be pulled to contain

China," said Rong Ren Goh, a portfolio manager in the fixed

income team at Eastspring Investments.

"It can include financial sanctions on Chinese entities,

further tightening the screws on Chinese access to technology

critical to AI development...the list goes on."

Thus foreign investors are likely to position themselves

defensively on any China-related assets, and probably hedge

their currency risk, he said.

China's equity market is in the midst of recovering from

a years-long slump as authorities promise to address weak

consumption and a downturn in the real estate sector. The CSI

300 index is up more than 20% since Sept. 23, when Beijing

started rolling out rate cuts and stimulus.

But a Trump win could stymie that rally, with technology,

defence and export sectors in the crosshairs of his policies.

Since both Democrats and Republicans are relatively united

in antagonism to China, markets may not react dramatically until

concrete policy changes are announced.

"Although both candidates are probably hawkish toward China,

Trump is still less predictable in terms of policy, so the

prospect of a Trump win could still drag sentiment a bit," said

Kenny Ng, strategist at China Everbright Securities

International in Hong Kong.

Onshore markets are, however, holding out for more stimulus

proposals and details from the Standing Committee of China's

National People's Congress (NPC), which meets through Nov. 4-8.

"Onshore investors are more focused on the NPC meeting this

week and are waiting to see if there will be more forceful

stimulus coming through, which will have a bigger impact on the

markets compared to the election," Ng said.

The offshore yuan fell more than 1% versus the

dollar, to its weakest since mid-August. Its onshore counterpart

was also down more than 0.8%, and China's major

state-owned banks were selling dollars to prevent the yuan from

weakening too fast, sources told Reuters.

Trump's proposed tariff and tax policies are viewed as

inflationary and therefore likely to keep U.S. interest rates

high and undermine currencies of trading partners.

During Trump's first presidency, the yuan weakened about 5%

against the dollar during the initial round of U.S. tariffs on

Chinese goods in 2018, and fell another 1.5% a year later when

trade tensions escalated.