The election of Joe Biden as president-elect of the United States would be beneficial for the US/China trade war but would fail to stem the competition between the two nations.
According to Robeco’s head of investments-China, Jie Lu, a Biden presidency would lower the risk of trade war escalation but would be unlikely to lead to unwinding of current tariffs.
However, there would be a comprehensive approach of competition and co-operation with China and the two sides were likely to engage more actively.
“Biden’s win won’t change the long-term rivalry between the two countries but Biden will take a sensible approach to competition with China and will work to mend the relationship that Trump has damaged over the last four years.”
Tim Campbell, co-founder of Longlead Capital Partners, said: “Democratic Party policy statements appear to place less emphasis on unilateral actions against China and more on US domestic policy, particularly with the need to support the US economy out of recession.
“This will likely result in a period of relative calm on the trade war front when compared to the tariff escalations we have seen in the past.”
However, State Street senior investment strategist, Raf Choudhury, added that Biden would not be “a soft touch” when it came to China.
Index allocation
Robeco’s Lu added a big change for the country’s investment outlook would be the increased allocation to the country within the MSCI Emerging Markets index. This was significant as China was already outperforming the rest of the index by a significant amount over all time periods and was likely to ‘outgrow’ the EM index relative to its peers.
As at 31 July, China made up 36% of the index while China A-shares made up a further 5%.
Once 100% of A-shares were added in the future, this weighting would surpass 50% made up of 28.5% allocated to China and 25% from China A-shares. The second-largest market would be Taiwan at just 10.3%.
Data from FE Analytics found the biggest performance differential between the two indices was over 10 years where the MSCI China had returned 163% versus returns by the MSCI EM index of 85%.
More recently, the MSCI China index had returned 26% over one year to 1 December, 2020, versus returns of 10% by the EM index.
