Biden vs Trump? D-Street can gain either way as long as it’s not a draw

US elections are scheduled for November 3. If there is a dispute, the political parties would have time until December 8 to resolve the differences. If no resolution is possible, electors would cast votes again by December 14 in such a case.

Reuters
The last three US election triggered sharp rise in US treasury yields, which had later dragged domestic equities lower. India, Indonesia and the Philippines, on an average, were the worst performers.
NEW DELHI: With the US elections just five weeks away, markets globally have started seeing a rise in volatility. On Dalal Street too, analysts have begun second-guessing the market impact of the election outcome.

Some said India has nothing to worry as the country has healthy relations with both Democrats and Republicans. But if there is no clear winner, that would be a risk to domestic stocks in the short run, they said.

US elections are scheduled for November 3. If there is a dispute, the political parties would have time until December 8 to resolve the differences. If no resolution is possible, electors would cast votes again by December 14 in such a case.


“US elections will clearly have a significant bearing; both in the runup to the voting day and after the vote,” said Nilesh Shah, of Envision Capital.

Independent market expert Ajay Bagga says if there is a dispute or no clear winner and the matter languishes for a month, there will be even more volatility. “That is what options and the VIX on US markets have been trying to price in,” he said, adding that a similar situation had arisen in 2000 between George Bush and Al Gore, and the US Supreme Court had to intervene finally.

UBS said US elections themselves have not generally impacted Asian equities significantly, but occasionally there have been large effects such as the 2016 incident when a sharp rise in US bond yields had impacted ASEAN, especially Indonesian equities, very hard.
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The last three US election triggered sharp rise in US treasury yields, which had later dragged domestic equities lower. India, Indonesia and the Philippines, on an average, were the worst performers, the foreign brokerage said.

ELECTION 1
UBS listed US trade and foreign policy, monetary policy and fiscal spending on infrastructure as three key factors that may shape sentiments in Asian equities. It believed a re-elected Trump administration is likely to continue to use trade policies to put diplomatic pressure on other Asian economies. Biden’s foreign policy could be especially tough against China, but more multilateral and predictable, UBS said.

In the case of Fed policies, the US central bank may choose more unorthodox policies if the President Trump is re-elected, UBS said. “In that case, expectation of low US interest rate could be extended, and high-yielding regions in Asia might experience accelerated capital flow, benefitting economies like India and Indonesia which have biggest yield spreads over the US treasuries.

“Southeast Asia plus India are among the economies likely to benefit the most, while North Asian exporters and Australia are relatively immune to the easy liquidity,” it said.
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In terms of infrastructure spend, commodity-driven economies are set to gain. Biden, who was also former US Vice-President, has proposed an additional $700-800 billion spend on infrastructure as part of the election campaign as opposed to $250-500 billion expected under a Trump administration.

UBS sees India as a potential winner in all three scenarios among 12 comparable countries.
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Chart 2
Bagga said the US money supply is up 25 per cent now, which is flowing through into various asset classes. He said a $120 billion per month quantitative easing is under way in the US and other central banks such as Bank of Japan, Bank of England and euro zone's ECB are all into the easing process.

"Within the markets you have four choices today – either you pursue momentum and growth, which has worked for so many years. Secondly, you diversify by going into an index ETF so that you are owning the market and not trying to make calls. Third is to rotate money into beaten down sectors, which will be key players for 2021 and beyond. Lastly, one can stay on the sidelines or have a combination of all this,” he said.

“So far, there is enough liquidity, which will come chasing and give some legs to this market,” he said.

Invesco said a disputed election will initially put downward pressure on the dollar and risky assets, but there is a possibility that the US Fed might intervene with some extraordinary actions, such as a temporary policy rate cut below zero or a large-scale asset purchase to stabilise the capital markets.
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