Institution: How to Trade the U.S. Election Under the New Paradigm?

GF Securities' Dai Kang released a research report stating that the U.S. election has more of a pulse-like impact on assets, and the election results are difficult to reverse (increased de-globalization / misalignment of the debt cycle / trends in the AI industry) with three underlying logics. The strategic level remains a "global barbell strategy." The window period for the resonance of the policy bottoms between China and the U.S. has arrived, marking the most significant policy shift in many years (surpassing the end of 2018). The domestic central bank and fiscal policies have significantly shifted towards a more proactive stance, focusing on the demand side, leading to the largest rebound in A-shares and Hong Kong stocks since the recent decline.

Recently, how is the "Trump trade" continuing to strengthen, and what are the similarities and differences compared to 2016?

This round of the "Trump trade" is still based on his core policy propositions (imposing tariffs externally, reducing taxes internally, encouraging fossil energy, expelling illegal immigrants, emphasizing technology, etc.) —> pricing assets (U.S. Treasury yields & dollar appreciation, strong performance of U.S. stocks & tech stocks, fluctuations in the RMB exchange rate & setbacks for Chinese outbound chains, developed markets outperforming emerging markets, global stock indices outperforming global bonds, etc.). This round of the "Trump trade" is by no means a simple linear extrapolation from 2016, with two points of distinction: (1) This round of the "Trump trade" is clearly advanced; (2) Some asset characteristics diverge from those in 2016, reflecting a "new investment paradigm."

Tactical level: Will the U.S. election reverse the "new paradigm reflection"?

The two major supports for this round of new paradigm reflection are the resonance of the "policy bottoms" between China and the U.S. What impact will the U.S. election have on this:

(1) Federal Reserve interest rate cut cycle: If Trump is elected, it may disrupt market expectations regarding U.S. inflation and the pace of Federal Reserve rate cuts, but one must consider the stronger debt constraints this time and his own "low interest rate" policy demands; if Harris is elected, the policy direction is likely to continue within the current framework. The bank assesses that regardless of the election outcome, the pace slope may be disturbed, but the overall direction of Federal Reserve rate cuts has become clear.

(2) Domestic policy support — policy shift has long been clear: The window period for the resonance of the policy bottoms between China and the U.S. has arrived, marking the most significant policy shift in many years (surpassing the end of 2018). The domestic central bank and fiscal policies have significantly shifted towards a more proactive stance, focusing on the demand side, leading to the largest rebound in A-shares and Hong Kong stocks since the recent decline. If Trump is elected, attention should be paid to the impact of the election results on U.S. trade policy, and domestic policies need to more strongly support domestic demand.

Strategic allocation — new paradigm foundation, "global barbell strategy."

The U.S. election has more of a pulse-like impact on assets, and the election results are difficult to reverse (increased de-globalization / misalignment of the debt cycle / trends in the AI industry) with three underlying logics, and the strategic level remains a "global barbell strategy":

(1) Gold: Directionally, regardless of who is elected, it is "big fiscal," and concerns over U.S. debt issues may continue to erode dollar credit, making gold's super-national sovereign credit value a necessary allocation. To some extent, a "Republican sweep" may provide the strongest support for gold prices.

(2) U.S. stocks: Directionally, the U.S. is currently in an "interest rate cut + no recession" economic cycle. The election results may affect the pace and slope to some extent, but the overall logic for U.S. stocks is gradually becoming favorable. To some extent, a "Republican sweep" with strong fiscal stimulus, especially tax cuts, has the best effect on boosting U.S. stock earnings, particularly for cyclical stocks Technology stocks may be a better combination.

(3) Southeast Asian markets: In the "debt cycle macro view," we continue to recommend the "Pan-Southeast Asia" new Asian Four Little Dragons (IVIP) (India, Vietnam, the Philippines, Indonesia). The core logic is: advantageous "position" in the debt cycle + benefits from de-globalization. The election results will not undermine the above core logic, but if Trump is elected, attention should be paid to the spread of his trade protectionist claims to Southeast Asian countries.

(4) Chinese assets: From a strategic perspective, the debt cycle remains the medium- to long-term core contradiction of Chinese assets. It is recommended to focus on the technology sector in the equity direction and interest rate bonds in the fixed income direction.

Risk Warning: Overseas experience is not equivalent to domestic experience, historical experience is not suitable for linear extrapolation, and geopolitical conflicts may exceed expectations