There are five ways the US election could impact markets, whether Republican President Donald Trump or Democratic challenger Joe Biden win, according to First Sentier Investors (FSI).
Jason Epstein, FSI senior portfolio manager – co-head of high yield, said a “blue wave” could spark a progressive policy push, if the Democrats were able to take control of the Senate.
“As polls are predicting a Democrat win is more likely, this outcome is mostly priced into markets already; what’s more difficult to predict is the scale of such a win,” Epstein said.
“Some of the policy areas already flagged in Biden’s campaign include tax rates, healthcare, infrastructure spending, climate change policy, education and housing.”
Stimulus funds would “freely flow” regardless of the winner as there would be a “tremendous” level of fiscal and monetary stimulus, combined with the prospect of a new stimulus bill and the idea of a Fed “put” for the foreseeable future.
“The real question is how sustainable that approach is – will it continue to underpin markets, or is there a breaking point?” Epstein said.
“There are also questions about how it will impact the US Dollar, and if the US Dollar will retain its place as the leading reserve currency.”
China relations were expected to remain under pressure as Biden had indicated he would maintain Trump’s tough stance on the world’s second-largest economy.
“Biden is looking to make the US competitive with China and to bring jobs back to US in areas such as automotive manufacturing,” Epstein said.
“The goal is to have strong domestic production capabilities that reduce their reliance on China.”
John Ma, FSI head of investments for North America unlisted infrastructure, said infrastructure would remain a local affair as much of that market was predominantly under state and municipal control.
“While funding can be allocated to the states at a national level, it’s the states and cities who mostly choose how to deploy the funding,” Ma said.
Democrats would also give renewables a boost as many in the party would push for the Green New Deal.
“It’s likely Biden would be a net positive for the renewable energy sector, which is already experiencing strong tailwinds,” Ma said.
While power generation is controlled locally and regionally, a Democrat administration is likely to put an emphasis on clean energy through levers like tax credits.”
