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For the stock markets, the close race between Kamala Harris and Donald Trump is a non-event. Normally, the rule is: uncertainty is the enemy of markets. Yet, the S&P 500 has recently climbed from one all-time high to the next, unaffected. This suggests that something else is more decisive for the markets: the US economy is booming, and the earnings season has started well.

A commentary by Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM.

Analysts follow their usual rituals: dissecting the economic policies of Harris and Trump to determine which of the two might be more beneficial for companies and markets. They delve into historical data to find out whether the stock market performed better under Democrats or Republicans. Their analyses regularly conclude that there is no clear market preference for either side. It’s simply too complex to causally link stock market developments to a president's policies. Still, the focus on the election is understandable: the final sprint is exciting, with two very different personalities facing off. However, all this distracts from another arena we should pay more attention to: China.

The world’s second-largest economy often takes the spotlight in the US election campaign—especially when Trump threatens tariffs. However, there is too little in-depth analysis of the economic and structural developments within China. The US stock markets are the engine of global exchanges, and this will likely remain the case for now. But what is brewing in China could have a more significant impact on market activity in the medium term than the question of who enters the White House.

China’s stock market is smaller than that of the US, and the Middle Kingdom is still considered an emerging market. In the so-called global stock index, MSCI World, and in many investor portfolios, China is either not present or has a minimal representation. Nevertheless, we should keep an eye on China’s stock markets. The challenges facing the country are becoming evident these weeks. When the government in Beijing announced support measures against the weak economy in September, stock prices surged. A correction followed. With the implementation of the first aid programs, there was another significant rise. The details of the stimulus packages remain unclear, and uncertainty continues to move the markets.

What lies behind this is complex. For years, China’s growing middle class has become a significant consumer of luxury goods. Recently, consumption has declined, and people are holding onto their money. Manufacturers of high-end products like LVMH and Kering are already feeling the impact. The population is aging and shrinking—a consequence of the now-ended one-child policy. This is becoming an increasing problem for importers into China. Within China, this development could further dampen productivity and the already weak growth. At the same time, China seeks economic expansion and evidently wants to remain a significant player on the global stage. This is evident, for example, in the electric car manufacturer BYD, which plans to start production in Hungary in 2025.

Despite such steps and China’s large presence in international economic relations, it is becoming increasingly clear that the years of strong growth are likely over for the foreseeable future. How resilient China’s economy is remains an open question. The structural problems in the country cannot be resolved with money alone. Whether measures like the recently announced increase in the retirement age will help is unclear. How international trade relations would change if Donald Trump wins the election in the US remains to be seen. This could reshuffle the global trade cards—with potentially significant impacts on China.

In conclusion: The Harris-Trump duel might seem very exciting at first glance. But the drama with greater impact and possibly larger consequences for the economy and markets is playing out elsewhere.