The 2024 U.S. presidential election has concluded with Donald Trump emerging victorious, setting the stage for significant economic and geopolitical impacts. Financial markets responded swiftly to the election outcome, showcasing stark contrasts between the optimism driving U.S. stock indices to new highs and the caution casting shadows over Chinese and Hong Kong markets.

Immediate Market Reactions in U.S., China, and Hong Kong Markets

U.S. stock markets enthusiastically responded to Trump’s re-election, reflecting investor confidence in his administration’s business-centric economic policies. On 5 November, the election day, the major U.S. stock indices began an upward trajectory in the next two weeks. The S&P 500 rose from 5,782.76 points to 5,916.98 points, a 2.32% increase. Similarly, the Dow Jones Industrial Average climbed by 1,047.06 points, or 2.48%, reaching 43,268.94 points, while the tech-heavy Nasdaq Composite surged by 2.97%, closing at 18,987.47 points.

This upward trend underscored investor optimism driven by expectations of reduced regulations, tax cuts, and a strong stance on inflation control. Trump’s proposed policies, which include economic measures favoring U.S. corporations and initiatives aimed at boosting domestic production, have fueled positive market sentiment. The prospect of a business-friendly White House is a green light for further capital inflow into U.S. equities as investors position themselves for a potential period of economic expansion and corporate growth.

Compared to the buoyant U.S. stock market, Chinese and Hong Kong markets experienced declines amid rising concerns over the potential for renewed trade tensions. Between November 5 and 19, the Shanghai Composite Index dropped by 1.21%, closing at 3,346.01 points. The Shenzhen Component Index fell by 2.39% to 10,743.84 points, and Hong Kong’s Hang Seng Index saw a significant 6.39% decline, closing at 19,663.67 points. This sharp downturn in Hong Kong’s market was exacerbated by the vulnerability of tech stocks, which bore the brunt of the sell-off.

The weakening of the Chinese yuan further reflected the market’s apprehension. The offshore yuan experienced its most significant single-day drop in over five years, with its exchange rate to the U.S. dollar hitting 7.1922. Similarly, the onshore yuan traded at 7.179, the lowest since November 2023. The rising value of the U.S. dollar, bolstered by Trump’s policy expectations, added pressure on emerging market currencies, compounding the difficulties faced by Chinese and Hong Kong markets.

Concerns Over U.S.-China Trade Relations

Trump’s return to the presidency has reignited fears of heightened trade conflicts between the U.S. and China, a critical factor in the negative market sentiment seen in Asia. Investors are bracing for new tariffs or the reinstatement of previously relaxed trade restrictions, which could disrupt global supply chains and weigh heavily on export-dependent sectors in China and Hong Kong.

A survey conducted by the commercial insights firm MDRi highlighted the apprehension among regional investors. According to the study, 40% of respondents in Hong Kong and 46% in Singapore expressed concerns over worsening U.S.-China relations following Trump’s election. This anxiety has prompted shifts in investment strategies; notably, Hong Kong investors reported plans to increase their allocation to U.S. markets, raising the share from 19% to 24%. Focusing on safer, more stable investments suggests a defensive posture amid potential economic headwinds.

Investment Climate and Policy Reactions

The uncertainty surrounding Trump’s trade policies has left Hong Kong and China investors on edge. Many are now calling for more robust policy measures from the Chinese government to cushion the potential economic blow. Kelly Chung, Chief Investment Officer for multi-asset investments at Value Partners, pointed out that the market hopes for substantial economic stimulus to offset the anticipated impacts of a more aggressive U.S. trade policy. Chung indicated that targeted support for domestic demand sectors could be critical for stabilizing investor confidence and maintaining economic growth.

However, such stimulus measures must be swift and significant to produce the desired market impact. While the Chinese government has expressed its commitment to supporting economic growth, market participants seek clear, actionable policies that can reassure local and foreign investors.

The U.S. dollar strengthened significantly as expectations of fiscal expansion and a potential uptick in inflation drew investors towards U.S. assets. Concurrently, the yields on U.S. Treasury bonds increased, reflecting concerns over potential budget deficits. The upward movement in bond yields indicates market expectations for reduced monetary easing and a more cautious approach to interest rate cuts by the Federal Reserve.

This environment has made investors wary of riskier assets, including stocks in emerging markets like China and Hong Kong. With U.S. bond yields rising and the dollar strengthening, investors may be inclined to pivot towards U.S. financial assets, further pressuring other markets.

Gold and Alternative Investments

As U.S. equities rally, some traditional safe-haven assets like gold have shown signs of consolidation. Analysts suggest that Trump’s perceived openness to loosening cryptocurrency regulations could redirect some investment away from gold and into digital assets.

Trump’s victory has underscored the significant divide between U.S. and Asian financial markets. While Wall Street celebrates the return of a familiar, pro-business administration, markets in China and Hong Kong face renewed uncertainty driven by increased U.S.-China trade tensions and a stronger dollar. In the days ahead, we will likely see further policy responses from Beijing aimed at stabilizing markets and bolstering economic resilience. Meanwhile, global investors, especially the HNWIs, should continue to adjust their portfolios, balancing opportunities in U.S. growth with the defensive strategies needed to navigate potential disruptions in emerging markets.