Political shock hits equity markets

The equity market in China fluctuated on Wednesday over uncertainties brought about by the US presidential election, with benchmark indexes dipping, a situation that analysts said may last for the next few days before investors refocus on economic fundamentals.

The Shanghai Composite Index dropped 0.62 percent to 3,128.37 points while the Shenzhen Component Index declined 0.61 percent to 10,697.11 points.

Hong Kong's Hang Seng Index plunged 2.16 percent to 22,415.19 points on Wednesday.

Construction, resources, banks and brokerages were among the sectors with the most losses, while gold producers and processors saw prices surging as investors sought risk-hedging tools and demand for gold also increased.

Shanghai-listed Shandong Gold Co rose 10 percent to 46.4 yuan ($6.84), and Zhongjin Gold Co rose 9.97 percent to 14.67 yuan. Hong Kong-listed Zijin Mining Co rose 5 percent to HK$2.74 (35 cents).

Analysts said that both mainland and Hong Kong shares were affected by the global market's volatility in response to the uncertainties, the possibilities of policy changes and changes to trade activities, and many other factors that are likely to emerge in the wake of the presidential election.

"Investors may have concerns about the short-term and long-term impact on companies with core businesses related to exports and imports, as foreign currency exchange rates fluctuate, and commodity prices may also affect manufacturing industries as well as sectors such as aviation and construction," said a research note from Sinolink Securities Co.

Dai Kang, a strategy analyst with Huatai Securities Co, said the impact would be short-term and investors in the A-share market would refocus on the domestic market. However, export-focused companies may suffer for a longer time, Dai added.

"We think that a Trump presidency could be negative for trade between the US and Asia. Asian currencies, especially the yuan, could face upside pressure. Consequently, Asian central bank (rates) would have to stay lower for longer," said Alvin Liew, a senior economist at UOB.

Robeco's Chief Economist Leon Cornelissen said uncertainty means the climate for equities will be negative for the coming weeks, and sovereign bonds will benefit from their safe haven qualities, though some inflationary fears could creep in.