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SINGAPORE: As the clock ticks towards the US presidential election on November 3, the intensity of the contest between Republican President Donald Trump and Democratic challenger Joe Biden is increasing.
For investors, the anticipation of the result has caused some wild rides in the markets.
A survey by wealth management firm UBS in September found investors favored Trump for economic direction and job growth. Yet Biden was his choice to manage the COVID-19 crisis, foreign policy, and healthcare.
During the last month, a lot has happened. From a first presidential debate that some have described as disastrous, until the president himself contracts COVID-19 and returns to the campaign a few days later.
Market watchers say these events may have changed investors’ minds on the ground.
READ: No knockouts in Biden, Trump debate 12 days before the election
Goldman Sachs says polls suggest a “blue wave” in November. This refers to the Democrats taking over the White House and Congress.
“Such a blue wave would probably lead us to improve our forecasts,” Goldman Sachs chief economist Jan Hatzius wrote in a note last month.
Moody’s Analytics has also predicted that a Biden presidency could result in the creation of 7 million more jobs, compared to a second Trump term. The unemployment rate is also expected to drop to around 4 percent in mid-2022, two years earlier than under Trump’s economic agenda. The US unemployment rate was 7.9 percent in September.
But with COVID-19 cases in the United States approaching 9 million, the pandemic has become the most pressing issue of the election. That’s why market watchers believe that Biden has an advantage over Trump, even if that means potentially higher taxes with a Biden presidency.
READ: Comment: Trump and Biden are fighting in the last leg of the presidential race, but do Americans care?
“Having COVID under control is the main thing that will help the American economy,” said Angela Mancini, partner at Control Risks, a consultancy specializing in global risks.
“At the same time, what we’ve seen is more recognition that if you do indeed collect higher taxes and can put them to productive uses, for example green energy and infrastructure and things that in the US They’ve said, ‘I’ve done it. Long-desired: If you can translate them into jobs, that will have a long-term sustainability impact for the economy. In the long term, that can also be more beneficial for investors, “he added.
In June, Morgan Stanley warned that investors were concerned about the impact of the reduction of Trump’s tax breaks by Democrats. It was feared that they could affect investment and employment.
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But some market watchers say candidates often make promises during a campaign that actually take a few years to materialize.
Song Seng Wun, a private banking economist at CIMB, says it would be counterproductive to impose too high a tax burden on businesses and consumers if the economy does not improve.
He cited the case of Japan, when the consumption tax was increased in October 2019. This exacerbated the impact of the COVID-19 pandemic on the economy. Therefore, he hopes that even if a blue wave occurs, policy on the fiscal front will be “extremely calibrated.”
READ: Comment: The choice of American voters concerned about the economic outlook could not be clearer
Another issue that investors are keeping an eye on is the ongoing trade dispute between the United States and China.
Vasu Menon, OCBC Bank’s chief executive officer of investment strategy, said Biden is unlikely to radically change Washington’s policy on China.
But one area where the policy could differ is in the use of fees.
“Trump has used tariffs to control China, to threaten China. I think Biden might not do that. He’s not in favor of using tariffs. He thinks it’s counterproductive,” Menon said.
“Markets have been affected by this trade war and this tariff war, so if Mr. Biden backs down on the tariff front, I think it will be a source of relief for the markets,” Menon added.
READ: Comment – The case for re-election of Donald Trump
Investors will also keep a close eye on the US dollar, especially if there is a spike in spending from a new administration.
“If that happens, then investors’ appetite for risk may increase in the medium and long term. When investors’ appetite for risk picks up, what often happens is that the US dollar weakens (as) its appeal as a safe haven diminishes, “Menon said.
“In that sense, it is possible that a Biden victory leading to a weak US dollar could lead to a rally in the emerging market, Asian equities, which have lagged behind the US equity market,” he said .
The only thing that market watchers agree on is that the need for stability returns to the United States.
“Whether they are retail investors or sophisticated investors, institutional investors, fund managers and asset managers of different sizes, they are quite uniform in terms of expressing the view that a Biden presidency brings greater stability to the world, it is less confrontational and in a blanket phrase, ‘greater peace and harmony,’ “Song said.
From an assets standpoint, this could mean less risk and more clarity in terms of a more coordinated response to things like the pandemic as well, he added.
However, the only thing markets don’t like is uncertainty. If there is no clear winner on Nov. 3, there is likely volatility in the stock market, experts said.
