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Original Title: Biden Wins Election, Comprehensive Analysis of Global Financial Market Impact
As of November 8, the results of the US general election have become clearer and Democratic candidate Biden has basically secured victory. How will this affect global financial markets?
Organizations interviewed by CBN reporters generally believe that what needs more attention at this point is that the congressional elections are still stalled. Democrats in the House of Representatives led by 213 to 195 votes, but the two parties in the Senate tied 48 to 48, reducing the likelihood of the Democratic Party sweeping both houses of the Senate (the “blue tide”) that you previously expected. the market. If this is the case, in the face of a divided Congress, many of the strong measures of the new government previously expected by the market can be discarded, such as large-scale fiscal stimuli, investment in infrastructure, etc., that will directly affect market trends.
Capital flows to emerging markets ahead of schedule
The market has already moved on. “Despite the postponement of the US election results, investors have increased their investment duration and exposure to emerging markets and reduced their cash levels in the last two trading days (5 and November 6) Our foreign exchange risk appetite index (RAI) has risen to the level of cautious risk pursuit. Since November 4, the cost of foreign exchange hedging for all maturities has fallen drastically, the rate of The exchange rate for emerging markets has risen slightly and implied volatility has fallen to (or close to) the respective most recent 3 months. Low point, “Zhang Meng, macroeconomic and currency strategist at Standard Chartered, told a China Business reporter. News.
In terms of emerging market equities, after a two-week hiatus, investor preference for Northeast Asian equity markets has recently re-emerged: net inflows of A-shares of $ 1.8 billion, net inflows of shares of Taiwan of $ 1.6 billion and net inflows of Korean shares of $ 1.5 billion. Emerging markets saw a large number of capital inflows in the week ending November 6.
It is worth mentioning that the recovery of funds from United States money market (MM) funds indicates that the use of capital (from MM funds and transferred to risky assets such as the stock market) has been reopened, which benefits the global stock market.
“The outflow of funds from US MM funds was suspended again last week. The reason was that global stock markets continued to rally, boosting risk sentiment. Moderate capital inflows were seen in global equities. and US high yield bonds. The bond has its first weekly redemption since April 1, “said Zhang Meng.
According to statistics from a China Business News reporter, in the last week (Nov 2-Nov 6), A shares received a net inflow of 21.416 billion yuan in funds to the north, a cumulative net inflow of 12.687 million yuan in Shanghai Stock Connect and 8.729 billion yuan in Shenzhen Stock Connect. The top five industries with net inflows are non-bank finance, electronics, banking, real estate, food and beverage (of the top five this week: computers, automobiles, steel); the top five stocks with net inflows areGree Electric、Luxshare Accuracy、Merchant Bank of China、Free china、Longji Actions(Leaving the top five this week:Ping a bank、Joyson Electronics、IFlytek）。
Morgan Stanley China equity strategist Wang Ying told reporters that confidence in A-shares may be boosted in the near term, but we must pay attention to the lingering uncertainty. The liquidation of external risk events has driven northbound funds into A shares, and the IT and communications services industries have outperformed; so far, net profit in the third quarter report has exceeded expectations. From a global perspective, the scale of possible US stimulus policies is smaller than expected and the epidemic is picking up again, which may affect risk sentiment. However, Morgan Stanley said that as corporate earnings continue to recover, macroeconomic recovery and financial liberalization, it maintains an overweight Chinese equity market.
Gold earnings still depend on fiscal stimulus
Last week, international gold prices recovered from less than $ 1,900 an ounce to $ 1,950 an ounce, but the medium-term rise in gold prices still depends in part on the intensity of the fiscal stimulus.
“In relation to the short term, we are even more optimistic about the market prospects in the medium term, because according to US law, the result of the elections is likely to be established before the day of the inauguration of the president on 20 January, and the governing philosophies of the two candidates support economic growth. Therefore, the next market volatility will be an opportunity to acquire risky assets in batches. US stocks soared and US stocks soared. technology are in the lead, because the probability of the ‘blue tide’ coming is decreasing, which means tax increases and strengthening in the future. The probability of supervision is very high. ” Wang Xinjie, chief investment strategist at Standard Chartered’s China Wealth Management Department, told reporters that the moderate drop in gold prices and the exchange rate of the US dollar was also due to the decreased possibility of a “blue tide”.
Specifically, Democrats in the House of Representatives currently lead with 213 to 195 votes, but the two parties in the Senate are tied at 48 to 48, reducing the likelihood that the Democratic Party will sweep both houses of the Senate. If this is the case, under the Republican-controlled Senate, some policies are not easy to advance on the Biden platform. This includes large-scale fiscal stimulus, higher taxes for people earning more than $ 400,000, investment in infrastructure focused on green energy, and expansion of the Affordable Care Act (ACA). This means that major policy changes are unlikely and policy uncertainty is weakened in the medium term.
However, there are still variables. At present, the House of Representatives remains a Democratic Party, but it is not impossible for the Senate to be brought down by the Democratic Party, that is, the initially expected “blue tide” may return. The final result will not be determined until January 5 of next year. The key to the problem lies in the indecisive state of Georgia.
This begins with the reelection of the United States Senate. Before the elections, the Republican Party held 53 of the 100 seats in the Senate and controlled the Senate. There are 35 seats to be re-elected in this general election. After days of competition, 31 seats have been released and Democrats and Republicans got 48 votes each. Of the 4 remaining votes, the Republican Party has a high probability of winning 2 seats in Alaska and North Carolina. For the two seats in Georgia, because the four candidates on both sides did not get 50% of the votes needed to win, according to the rules, a runoff will be held on January 5 to determine final ownership of the seats. If the Democrats can finally win these two seats, the two parties will eventually tie 50-50 in the Senate. According to US law, in the event of a tie, the vice president will act as president of the Senate with one additional vote. If Biden wins the president and appoints Harris as vice president, then the Democratic Party will control the Senate by virtue of this vote.
However, due to increased risk sentiment, the US dollar index has fallen from 94 to 92-93, and US dollar-denominated gold has also been temporarily boosted. “The global currency oversupply, ultra-low interest rates, geopolitical risks and other factors remain very obvious to support gold prices in the medium and long term,” said Wang Lixin, Managing Director of the World Gold Council (WGC ) China, to reporters a few days ago.
Weak USD opens, RMB remains strong
The US dollar index has fluctuated sharply in the past week, but it is still widely believed that the “weak dollar” market has started and that the renminbi will remain strong.
FXTM market analyst Chen Zhonghan told the CBN reporter: “The US dollar index rose first and then fell last week. After the election day vote, it rose for a while, but the gain was blocked by the 100-day moving average and broke below the 50-day move on Day 6. After the moving average, the support level is retested at 92.45. The Democrat-led US government may accelerate the introduction a new round of fiscal stimulus, which will put pressure on the US dollar. However, the game between the two parties between the government and Congress may increase the scale of the new round of fiscal plans. Contraction, and this helps ease the dollar’s decline. ”At the close of November 6, the dollar index was at 92,297.
As for the renminbi, favorable economic fundamentals and historically high interest rates between China and the US (250BP) are the main support. Standard Chartered previously predicted that under normal circumstances, the RMB may appreciate up to 6.4-6.5 before the first half of 2021.
On November 4, the renminbi exchange rate fluctuated dramatically. The offshore renminbi fell almost a thousand points once, but the decline has narrowed sharply since then. As of 7:50 p.m. that day, the offshore renminbi had risen against the US dollar and was reported near 6.6822. In general, institutions expect any major rebound in the dollar against the renminbi this year to be limited. The reason is that the US budget deficit is not as expected, and the US trade deficit is unlikely to improve in the short term. Even if safe-haven funds seek the US dollar during short-term fluctuations, it may return to a weaker track in the long term. changes occurred. In addition, a large number of international funds are currently on the sidelines and waiting to increase the A-share market. Corporate profitability will be the most critical indicator going forward.
Sina Statement: This news is a reprint of Sina Cooperative Media Posting this article on Sina.com for the purpose of conveying more information does not mean that I agree with their views or confirm their description. The content of the article is for reference only and does not constitute investment advice. Investors trade accordingly at their own risk.
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