Hong Kong stocks surge, yuan at two-year high as Biden’s wins in Michigan and Wisconsin allay fear of US election deadlock

Zhang Shidong
·4-min read

Hong Kong and China stocks rallied, with the city’s benchmark gauge capping its best single-day performance in four months while the yuan climbed to a two-year high. Joe Biden’s wins in Michigan and Wisconsin took him closer to the finish line while an Australian bookmaker made early payout for bets on his win.

The Hang Seng Index climbed 3.3 per cent to 25,695.92 for the biggest rally since July 6. Alibaba, which owns the South China Morning Post, rebounded from its record slump on Wednesday triggered by the suspension of its affiliate Ant Group’s stock offering.

The Shanghai Composite Index added 1.3 per cent. China’s yuan strengthened against the US dollar for a sixth consecutive day, taking it to the strongest level versus the US dollar since 2018. A Biden victory is interpreted by traders as positive for yuan assets because of his milder approach to trade relations with China.

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“As US election event risk is out of the way, while a Biden presidency implies more predictable foreign and trade policy, which would particularly be beneficial for China equities,” said Chetan Seth, an analyst at Nomura Holdings in Singapore.

In a video address to kick off China’s International Import Exhibition on Wednesday night, President Xi Jinping promised further opening of China’s internet and digital economy, without providing more details.

Sentiment was also resilient around the region, with the MSCI Asia-Pacific Index rising to its highest level since February 2018. US stocks also rallied in overnight trading, as investors were confident that the key driver of the bull market, corporate tax cuts, will remain intact no matter who wins the presidential race.

Biden won Michigan and Wisconsin, putting him on the cusp of taking the White House from President Donald Trump, hours after the president’s team opened legal fights to stop vote counting in at least two states while millions of votes in battleground states were still being counted.

Bookmaker Sportsbet has decided to pay out early on a Biden win, it tweeted earlier on Thursday. The firm deemed Biden’s lead as “unassailable” and has paid out over 100,000 bets to punters, according to Bloomberg, citing a company statement.

“Biden is widely seen as likely to be less combative on trade policy and concerning the region‘s growth engine China, and investors hope that may clear the way for Asia’s stronger recovery from the coronavirus crisis to draw more investment,” said Stephen Innes, a strategist at Axi.

US stocks advanced during eight of the past 10 US presidential terms since 1981, comprising four Republicans and two Democrats in the Oval Office, with the biggest gains recorded during the first terms of Bill Clinton and Barack Obama, according to a Post analysis.

Market euphoria during the two first-term Democratic administrations correlated with the biggest increases in the key indices of Hong Kong, Shanghai and Shenzhen, according to four decades of US election and local market trends.

US elections: Who is better for the stock markets of China and Hong Kong, a Democrat or Republican president?

In Hong Kong, Alibaba jumped 6.3 per cent to HK$294.60 after suffering a 7.5 per cent rout on Wednesday. The fair value of the e-commerce juggernaut would be negatively affected by an estimated low- to mid-single-digit percentage, given that Ant Group only accounts for 11 per cent of that value, Chelsey Tam, a senior equity analyst at Morningstar, wrote in a note.

Chinese technology stocks also rallied, reversing sell-offs a day earlier, on optimism that a Biden win will be less disruptive to businesses. Sunny Optical Technology climbed 5.3 per cent to HK$144.30 and Semiconductor Manufacturing International Corp advanced 7.4 per cent to HK$23.95.

Chinese punters are also on a close lookout on the Trump-Biden race. Wisesoft, a Chinese software maker, sank 2.9 per cent to 16.73 yuan in Shenzhen, reversing much of the 6.4 per cent rally on Wednesday. The firm’s name in Chinese is associated with a Trump win.

Liquor distiller Wuliangye Yibin gained 2.5 per cent to 259.41 yuan, taking its market cap slightly past 1 trillion yuan (US$150.6 billion) for the first time. The stock was the first one to surpass the trillion-yuan market on the Shenzhen bourse.

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