As we approach the closing stages of the 2016 election, the writing may be on the wall. Democrat Hillary Clinton pulled ahead convincingly in what is described as a war between the “unfavorables.”
Certainly, neither the Democrats nor the Republicans are wholly satisfied with their top-ticket candidate. But history may prove that this race was won by the person making the fewest mistakes.
Inarguably, to the relief of investors in Chinese stocks, that person is Hillary Clinton so far.
China has been a favorite target of Republican presidential nominee Donald Trump. There isn’t an arena-filling rally that hasn’t gone by where “The Donald” refused to blast poor trade deals with the Asian giant. The message resonated with many conservative voters, especially in America’s “rust belt.” There, any talk about a malicious “other” can score major political points.
And for a time being, especially during the primaries, the rhetoric seemingly had weight. At the time, Chinese stocks were one of the worst investments.
But as the primaries closed and the general election cycle began, a paradigm shift was evident. Despite a very questionable track record, Hillary Clinton is admittedly a polished political machine. To mere mortals, she comes off as stilted and pretentious. But one thing is for sure — Hillary Clinton is generally not going to get in the way of Hillary Clinton.
That’s the critical mistake committed by Donald Trump and especially the Republicans. Whether Clinton is going to be tough on China or not remains to be seen. Certainly, though, she’s not going to show her cards prematurely. That has buoyed Chinese stocks — Clinton is a variable, but we all know what we’re getting with Trump.
Significantly, Chinese stocks have made their voice heard during the presidential and vice-presidential debates. The mainstream media largely considers the debates a Democratic victory. After each occurrence, several Chinese stocks have gained in the markets. A similar dynamic in the indices of other targeted countries (ie. Mexico) was also witnessed.
In the midst of this current political tug-of-war, there is a bipartisan agreement — Chinese stocks are definitely with Hillary Clinton.
Chinese Stocks Hoping for Hillary Clinton: iShares FTSE/Xinhua China 25 Index (ETF) (FXI)
Internationally focused exchange-traded funds have been a hit-or-miss affair in 2016. Just ask long-term holders of iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI).
For several years, China was regarded as the king of the emerging markets. As a result, the FXI was a natural choice for speculators due to its stability and high volume.
That concept came crashing down after the bubble in Chinese stocks burst spectacularly.
It’s no stretch to say that FXI investors are relieved at the prospects of a Hillary Clinton presidency. Though her unfavorables are as deep as the day is long, she’s not going to jump out of the gates guns blazing.
Click to Enlarge Also, Clinton’s demeanor is much more in line with Chinese business etiquette. One of the big taboos is to directly call someone out. With an entire nation being targeted, the environment for the FXI and Chinese stocks in general is unnecessarily pressured.
We shouldn’t dismiss Donald Trump and his multiple successes in business. In contrast, Hillary Clinton hasn’t done anything of substance outside of the elitist, political arena. Trump, however, may be used to dealing with iron-fisted, New York mafioso-types. That’s wonderful for the city that never sleeps. But as it relates to the FXI and our relationship to China, the President must demonstrate finesse.
Clinton is perceived to be able to do exactly that, and that’s why the FXI is with her.
Chinese Stocks Hoping for Hillary Clinton: Alibaba (BABA)
The surge in the polls for Hillary Clinton has been a boon for all Chinese stocks, even the ones that don’t necessarily need help. Just take a look at Alibaba Group Holding Ltd (NYSE:BABA).
After riding out a sketchy January, it has been clear skies for BABA stock, which is up nearly 25% year-to-date. BABA is also in triple-digit territory for the first time in over a year.
Interestingly, the “road to $100” started in earnest a few weeks after the Democratic National Convention. BABA stock added to the momentum following the first presidential debate, moving up 2%. The day after the vice-presidential debate between Republican Mike Pence and Democrat Tim Kaine, BABA gained 1%, then another 2% after the second Trump-Clinton go around.
Click to Enlarge This is not to suggest that BABA is moving only based on American political rumblings. Alibaba is one of the flagship names among Chinese stocks, and this reputation is well deserved. Profitability margins are best-in-class, return on equity is outstanding and the balance sheet is very stable.
Best of all, the company is growing the top line at a phenomenal rate. No one’s worried about BABA.
However, even the best stocks would prefer to run with the wind at their back. For BABA and the rest of these Chinese stocks, Hillary Clinton is their candidate of choice.
Chinese Stocks Hoping for Hillary Clinton: China Petroleum & Chemical Corp (SNP)
Unless you brilliantly timed the market, no one associated with the oil and energy industry has been having a good time. Sure, commodity prices have rallied this year, but that’s a pittance next to what has been lost.
Therefore, it’s reasonable to assume that China Petroleum & Chemical Corp (ADR) (NYSE:SNP) wouldn’t be affected by our — rather embarrassing — political discourse. Surely, SNP has bigger problems on its plate?
Yet surprisingly, SNP has reacted to the presidential debates — and quite strongly. Immediately after the first dust-up, SNP gained 2%. It tacked on another 2% following the awkward second round.
Click to Enlarge Funnily enough, SNP had its best session at the conclusion of the vice-presidential debate, gaining nearly 4%. In an election cycle of firsts, the words of potential vice presidents carried more leverage than the top of the ticket.
There’s actually an argument to be made that SNP has the most to lose from this election. One of Donald Trump’s specific accusations is that China is a currency manipulator. A ham-fisted approach towards the second-biggest economy in the world could create unwanted consequences in currency markets. SNP and other Chinese stocks sensitive to such fluctuations could falter under a Trump administration.
Right now, that looks to be in doubt, which is favorable for SNP shareholders.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.