1、 How will the changes in the US election pattern affect the market?
This week, the market has fluctuated, with stable sectors such as banks and coal holding a relative advantage. We believe that several major risks that have caused significant fluctuations in overseas markets in the near future may be lower than expected. However, unexpected changes in the US presidential election may significantly increase the mid-term risks for the US, and there have been new changes in the geopolitical situation recently. The stimulus policies such as domestic consumption and real estate storage will continue to exceed expectations in the second half of this year.
We previously emphasized that considering the pattern of an election year, the risk of a hard landing for the US economy in the second half of the year is relatively low; Furthermore, judging from Iran's response, although countermeasures are inevitable, a certain degree of restraint will be maintained, and the probability of the Middle East risk getting out of control is relatively low. The US economic data released this week effectively reduced market concerns about a "hard landing" for the US economy, and the Nasdaq index continued to rise. As for the domestic market, the turbulence in overseas markets has limited impact on the overall market. After the liquidity crisis in overseas markets gradually subsides, the sentiment of northbound funds may improve.
The biggest medium - to long-term risk overseas currently remains the uncertainty brought about by this year's US election. Previously, the market believed that the Democratic Party may choose a vice presidential candidate with a relatively conservative and moderate stance in key swing states to compensate for Harris' shortcomings in winning over key swing states and middle of the road voters due to being too "progressive left-wing". However, Minnesota Governor Waltz unexpectedly became a vice presidential candidate, which may bring significant variables to the election and even the long-term political stability of the United States.
Further polarization and fragmentation within the United States may lead to a significant increase in global economic and political instability. The establishment of vice presidential candidates from both parties has made this election a "radical left vs radical right" contest, with both parties abandoning center voters and attempting to weaken the power of the establishment and moderates within the party. This change not only makes the election situation more "mysterious", but also brings a series of profound impacts.
From the perspective of Harris' deputy and campaign team composition, if elected, domestic and foreign policies will be more focused on Obama's radical approach rather than Biden's moderate approach. For example, in terms of domestic security and border areas, further relaxing the management of illegal immigration, public security, etc; Economic policies may significantly expand welfare and medical insurance, accompanied by high taxes; In terms of industrial policies, stricter requirements for environmental protection will further reduce the supply of traditional energy; On international issues, it may fuel various unstable forces under the banner of "democracy", which on the one hand will undermine their relationship with oil producing countries, and on the other hand, it will sow many hidden dangers of geopolitical instability. These factors will have a long-term impact on domestic inflation in the United States, as well as the prices of gold and crude oil.
Although both the Trump Vance and Harris Waltz combinations will have an impact on the US Congress and international stability, the Democratic Party as a whole may be relatively moderate. In terms of international relations, the background of Waltz's "pro China faction" allows the Harris Waltz combination to relatively keep the competition between China and the United States within a controllable range, which may make the upper limit of global fluctuations relatively controllable.
2、 Investment advice
Considering that the unexpected changes in the US presidential election may significantly increase the mid-term risks in the US, and there have been new changes in the geopolitical situation recently, domestic consumption, real estate storage and other stimulus policies will continue to exceed expectations in the second half of this year. Therefore, we will maintain our overall focus on stability in the second half of the year.
In terms of industry configuration, it is currently recommended to focus on the public utilities, non-ferrous metals, core military industry, public utilities, and mid to upper reaches of central state-owned enterprise sectors.
Risk Warning: Macro policy regulation falls short of expectations, industrial policy implementation falls short of expectations, market sentiment is unstable, and there may be risks of information lag or untimely updates in the publicly available materials used in research reports.