The Democratic Party achieved a major victory in the midterm elections, and a series of overseas "input risks" subsequently emerged, leading to a quiet shift in global asset pricing logic.

The team led by Cao Liulong from Western Securities believes that following the election results, market concerns over the hindrance of the pace of construction for U.S. AI Data Centers (AIDC) have intensified. Coupled with expectations of easing U.S.-Iran relations, U.S. bond yields and the dollar have weakened in sync. The victorious topics of the Democratic Party—ending the U.S.-Iran conflict and delaying AIDC construction—point towards a mid-term trend of a weaker dollar, further strengthened by the nearing expiration of temporary funding at the end of the year and the upcoming debt ceiling negotiations early next year.

Behind the overseas AI deceleration expectations lies a deeper conflict in the distribution of interests among tech companies, the public, and the government, a structural problem that is unlikely to dissolve in the short term. In contrast, domestic large firms have a relatively low base for capital expenditures and significantly better financing costs, marking the quiet emergence of a narrative window for the U.S.-China AI sector of "the East rises while the West falls." Based on this, Western Securities maintains a bullish strategy on Hong Kong internet stocks.

The results are in, "input risks" begin to materialize

After the Democratic Party's significant victory in the U.S. midterm elections, the overseas input risks previously warned by the market began to gradually unfold. The U.S. market is concerned that the construction pace of AIDC will be hindered, while expectations for easing U.S.-Iran relations have increased, applying pressure on U.S. bond yields and the dollar in sync.

The election results do not mean that overseas volatility will settle down. After the Democratic victory, emphasis was placed on closely reviewing data center projects; presently, the entire process remains at the stage of emotional fermentation, and there is still potential for fluctuations. Given that we are still in a rate hike cycle, external market volatility cannot be underestimated.

For the A-shares, external input risks still exist, but the bottom area is gradually becoming clearer. On the policy level, support is visibly being intensified—on November 6, Premier Li Qiang held a State Council meeting to clarify the need to "improve the capital market stabilization mechanism, enhance the internal stability of the stock market, and promote the steady and healthy development of the capital market"; also, on November 3, the report on financial work submitted for review by the National People's Congress clearly reaffirmed related statements. Meanwhile, broad-based ETFs have continuously seen high-intensity net inflows that form bottom support—major broad-based ETFs have recorded net inflows for 25 consecutive trading days from September 28 to November 6, with the cumulative scale exceeding 414.9 billion yuan for the CSI 300 and ChiNext ETFs, and the daily average net inflow of the CSI 300 ETF recently set a new high for the past six months.

Democratic victory reinforces mid-term trend for a weaker dollar

Beyond short-term market fluctuations, the mid-term trend is more noteworthy. Historical experience shows that after the Democratic Party wins the midterm elections, the dollar tends to weaken relatively; conversely, after a Republican victory, the dollar is more likely to strengthen. The results of the past several elections related to Trump's administration or candidacy have also confirmed this pattern.

There is also logical support. The core topics supporting the Democratic Party's victory—ending the U.S.-Iran conflict and delaying AIDC construction—constitute downward pressure on the dollar, and recent oil prices have begun to reflect expectations of geopolitical easing. Additionally, the Democratic Party is more inclined to increase expenditures in welfare areas such as healthcare and education, which will further elevate fiscal pressure, raising market concerns about the sustainability of U.S. finances.

On the timing front, the interim funding expiration date of December 11 and the government's debt ceiling issue expected around the first quarter of 2027 are worthy of special attention. The debt ceiling issue will most likely be resolved eventually, but the tug-of-war between the two parties could create a trading window for a "weaker dollar."

Slowdown in AIDC construction: the surface is ballots, the underlying issue is taxation

The expected slowdown in this round of AI data center construction reflects public dissatisfaction, but the deeper conflict lies in the imbalance of fiscal interest distribution structures.

The share of U.S. corporate pre-tax profits in GDP has reached a historic high, yet corporate income tax revenue has rapidly dropped from previous peaks to around $380 billion, significantly lower than the Congressional Budget Office (CBO)'s forecast earlier this year. The tax deduction policy for data center investments is one of the key reasons for this discrepancy—greater current expenditure by companies reduces taxable profits, and consequently pressures actual government tax revenue. In other words, the benefits of AI infrastructure construction are captured by large tech companies, while the social costs and tax losses are borne by the public and the government.

The Democratic Party leverages the midterm elections to reallocate interests as a core logic, rather than to terminate AI construction itself. In the short term, this change is likely to create rhythmic disturbances in data center construction progress. Signs of this trend are already visible: the proportion of restrictive legislation related to data centers in 2026 has significantly increased. Three key observation points follow: the ERCOT report to be released on December 10, 2026, legislative trends following the state assembly opening on January 12, 2027, and administrative measures after the inauguration of the new governor on January 19.

U.S.-China AI welcomes a "East Rising West Falling" narrative window

The doubts about the deceleration of overseas AI objectively provide an opportunity for domestic AI to rephrase the "East Rising West Falling" narrative, with the core differences in capital expenditure pressure and financing costs.

On the capital expenditure front, the absolute base of domestic large firms is significantly lower than that of overseas cloud firms, resulting in relatively less pressure to decelerate. Data shows that capital expenditures for U.S. cloud firms are generally exceeding operating cash flows in 2026, and the situation is expected to worsen further in 2027; in contrast, domestic cloud firms are expected to see improvements by 2027.

Regarding financing costs, the disparity between U.S. and Chinese cloud firms is particularly stark. Leading domestic cloud firms primarily finance in RMB, resulting in significantly lower costs—for instance, Alibaba's weighted average interest rates on short-term and long-term bank loans in RMB are only 1.5% and 2.5%, respectively, as of March 2026. In contrast, overseas, high-interest dollar debts have become a significant constraint on AIDC expansion: Oracle's new bonds issued in November 2026 have interest rates as high as 7% to 8.65%, while CoreWeave ordinary bonds are in the range of 8.5% to 9.75%.

This structural difference renders the domestic AI industry chain relatively more resilient to risks, with growth expectations being more robust.

Strategic allocation window: maintain a bullish outlook on Hong Kong internet

The report from Western Securities posits that while overseas input risks disrupt global risk appetite, they also open a narrative window for domestic "curve overtaking." The phase of weak dollar following the midterm elections presents a strategic opportunity for increasing allocation in Hong Kong internet stocks.

The report outlines three main lines for allocation:

Real estate and consumption: If overseas liquidity reaches an inflection point and the external environment improves, a series of domestic fiscal policies are expected to accelerate their implementation, supporting housing prices and repairing the balance sheets of households. The report suggests that at that time, some real estate stocks may have restoration potential of two times or more, and the consumption sector is likely to head toward a "core consumer asset bull market."

Hong Kong internet: If there are liquidity shocks overseas, Hong Kong stocks may exhibit significant adjustments; if overseas liquidity reaches an inflection point, Hong Kong stocks are likely to welcome valuation reassessment—after the Fed initiated QE in March 2020, Hong Kong stocks subsequently rose by over 170%. The domestically controllable cloud computing chain is also expected to recover synchronously.

Gold and non-ferrous metals: If overseas liquidity shocks materialize, gold and non-ferrous metals will experience phase pressure; if a liquidity inflection point occurs, the narrative of a "super cycle for commodities" is expected to return.

Risk warnings and disclaimers

Markets bear risks, and investments need caution. This article does not constitute personal investment advice and has not taken into account the specific investment goals, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investments made based on this information are at the investors' own risk.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到[email protected]，本平台相关工作人员将会进行核查。