China investors would love a Biden victory. Despite his new "Buy American" pledge, a play on ... [+]
If Joe Biden looks to be winning the election this November, start buying anything China: stocks or bonds. Indeed, for the past three months, with Biden still looking to be in the pole position to take the White House from incumbent President Donald Trump, the X-Trackers China A-Shares
For Wall Street money flowing into China, the US elections will be key, says Craig Chan, a bond fund analyst with Nomura. “A Biden presidential victory likely to result in an acceleration of inflows into China.”
Biden is expected to be “Trump-lite” on China. No new tariffs are expected. Biden said he has no plans of removing existing tariffs.
China’s bond market has gone global thanks to additions of government securities into two major bond indexes and not because of Biden, or Trump. It’s all a matter of demand from yield hungry investors looking for sovereign and quasi-sovereign debt that actually pays interest.
That Biden is bullish only means that a Biden presidency is seen as being less antagonistic, less likely to increase tariff risk, and that improves sentiment for global bond investors. It’s as simple as that.
August flow data showed $18.9 billion of foreign cash went into China’s bond market, which helped to offset net equity outflows in the month as investors lock in profits.
Data from China Central Depository & Clearing and Shanghai Clearing House show that inflows were mainly directed into Chinese government bonds and into state bank bonds, divided almost evenly among the two.
The strengthening of foreign bond inflows post-pandemic China is equal to around $11 billion monthly year-to-date, which is low due to outflows from early in the year. Still, that number is above the expected $8.3 billion of monthly inflows since Chinese bonds became part of the Bloomberg Barclays Global Aggregate Index starting April 2019 and going to November 2020 before they are fully included. That alone means any global bond fund that benchmarks to that index is invested in Chinese government bonds. Estimates are that Chinese government bonds now capture around $6 billion a month from foreign investors.
Chinese bonds are also part of the JP Morgan Emerging Market Global Bond Index and funds tracking that index lead to an additional $2.3 billion of foreign capital flowing into Chinese government coffers.
In China, the Northbound Stock Connect flows have been weak lately with $6.3 billion of inflows in August going from Hong Kong to China, still below pre-pandemic averages of $12.4 billion monthly.
Southbound Stock Connect outflows in August 2020 normalized to $9.3 billion from the large outflows of $17.5 billion in July. Southbound flow is Shanghai/Shenzhen exchanges buying Hong Kong listed shares.
Still, just like the bond market, “Equity inflows will be supported if the market continues to price in the scenario of a Biden victory, and especially, if this become reality,” says Chan.
