How Global Market Watchers Are Viewing U.S. Elections 2020
The crucial presidential contest in the U.S. between Republican incumbent Donald Trump and his Democratic challenger Joe Biden will conclude on Wednesday. Asset managers, market researchers and investors are trying to gauge the impact on equities and other asset classes such as gold and bonds across the globe amid heightened volatility.
Here are the global market views on the U.S. elections:
UBS has assessed potential risks based on three scenarios:
- Biden is elected with Democrats taking both houses of the Congress.
- Status quo where Trump is re-elected as president and the Democrats and Republicans retain the House of Representatives and the Senate, respectively.
- Biden is elected but Democrats and Republicans retain the House of Representatives and the Senate, respectively.
- India, Indonesia and Singapore come out positively in two of the three scenarios, without being relatively negatively affected in the third.
- UBS U.S. Strategist Keith Parker estimates an 8% earnings loss to S&P 500 through potential tax raise under former Vice President Biden’s agenda. Short term, this could boost the relative attractiveness of Asian equities.
- Markets with greater overseas revenue exposure, especially North Asian exporters, could benefit if the U.S. adopts more multilateral and predictable trade/foreign policy (more likely under Biden scenarios).
- Markets with high yield gaps, low current account balances/deficits, and historical sensitivity to the U.S. bond market could benefit in an environment of easier-for-longer monetary policy (a more likely outcome under the ‘status quo’ scenario). This would likely benefit South Asia.
JPMorgan Asset Management
JPMorgan Asset Management said markets have had to contend with two election uncertainties:
- Uncertainty around the timing of the election result.
- Outcome of the election itself and its potential impact on international policy.
- Investors have become concerned about a delayed election result due to the time needed to count mail-in votes and the potential for a contested election. This possibility of a prolonged period of uncertainty has not been good for risk appetite, which tends to result in a strengthening of the U.S. dollar.
- A Biden victory is seen as representing a return to rules-based international policy, with a more predictable approach towards trade agreements and the China relationship. This reduction in uncertainty would be beneficial for international markets, as it would give investors greater confidence in the global economic rebound, making them more willing to invest in international markets.
Societe Generale Cross Asset Research
The firm stated upfront that the U.S. elections will not alter its overall stance on China and Asia equities. It classifies the impact into two simple baskets:
- Trade policy, less centered on tariffs and more on seeking an ally. would broadly benefit Asia.
- Sentiment on China equities, especially on technology, could improve in the short term.
- Biden has said he will lift the temporary suspension on H-1B visas. This bodes well for Indian IT services, which underperformed ahead of the previous U.S. elections.
- Among EM Asia, Societe Generale would be long on India versus Indonesia, as Indonesian currency will continue to be among the more vulnerable currencies.
- Would mark a pause in China equity outperformance.
- Renewed fiscal expansion and possibly a second tax cut depending on the composition of the Congress would favour cyclical markets, including Japan.