(Bloomberg) — The yuan weakened the most in two years and Chinese stocks fell, giving traders a taste of the volatility that lies ahead as Donald Trump closes in on the US presidency.
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The offshore yuan fell as much as 1.3% against the dollar, the largest one-day drop since October 2022. Chinese shares listed in Hong Kong bore the brunt of the selling, with a Hang Seng gauge closing 2.6% lower, while stocks on the mainland registered smaller declines amid hopes for more stimulus.
Traders now have to grapple with the specter of Washington slapping tariffs of up to 60% on Chinese goods, a move that can further weaken the world’s second-largest economy and disrupt global supply chains. While some have said a second Trump presidency will weigh less on Chinese markets given investors have become accustomed to his hawkish rhetoric, policy uncertainties and rising tensions may still fuel market swings.
“The volatility of the yuan will pick up in the short term as a knee-jerk reaction to Trump’s victory,” said Cary Yeung, head of Greater China debt at Pictet Asset Management. The longer-term price action depends on tariffs implementation, US rate cut trajectory and the magnitude of China’s policy response to stabilize the economy, he said.
The onshore yuan extended declines to 0.9% as Trump’s lead widened in the afternoon.
Traders are now turning their attention to Beijing’s policy firepower. With Chinese exports proving to be a rare bright spot amid a sluggish economy, a hostile trade environment means authorities will need to ramp up both monetary and fiscal support to offset the negative impact.
The central bank chief has pledged to maintain an accommodative monetary policy stance and double down on countercyclical adjustments. There’s also the expectation of further fiscal stimulus from the Standing Committee meeting of the National People’s Congress, which concludes on Friday.
Market Swings
Chinese stocks were already under pressure after the rally triggered by a monetary policy blitz in late September cooled. The CSI 300 Index surged nearly 35% from a September low through Oct. 8, but has fallen about 5% since. The benchmark for onshore shares slipped 0.5% on Wednesday.
While Beijing may offer support if markets go south, there are concerns over how a second Trump presidency, and his anti-China policies, may sour US investors’ appetite toward the Asian nation.
