Trump vs Biden: Potential implications for investors
As the clock ticks down to the US presidential election, Money Mind looks into the potential impact of a Trump or Biden victory, and what this means for investors.
SINGAPORE: As the clock ticks down to the US presidential election on Nov 3, the intensity of the contest between Republican President Donald Trump and Democratic challenger Joe Biden is rising.
For investors, the anticipation of the outcome has led to some wild rides in the markets.
A survey conducted by wealth management firm UBS in September found that investors favoured Mr Trump for economic direction and job growth. However, Mr Biden was their pick to manage the COVID-19 downturn, foreign policy, and healthcare.
Over the past month, much has happened. From a first presidential debate that some have called disastrous, to the president himself contracting COVID-19 and returning to the campaign just days later.
Market watchers say these events may have changed investors’ opinion on the ground.
Goldman Sachs says polls are suggesting a “blue wave” in November. This refers to the Democrats taking the White House as well as Congress.
“Such a blue wave would likely prompt us to upgrade our forecasts,” wrote Goldman Sachs chief economist Jan Hatzius in a note last month.
Moody’s Analytics has also forecast that a Biden presidency could result in 7 million more jobs created, compared to a second Trump term. The unemployment rate is also expected to drop to about 4 per cent by mid-2022, two years earlier than under Mr Trump’s economic agenda. The US unemployment rate was 7.9 per cent in September.
But with the US' COVID-19 cases now well approaching 9 million, the pandemic has emerged as the most pressing issue of the elections. This is why market watchers believe Mr Biden has an edge over Mr Trump - even if it means potentially higher taxes with a Biden presidency.
“At the same time, what we’ve seen is an increased recognition that if you do indeed collect higher taxes and you can put those into productive uses - for example, green energy and infrastructure and things that in the US people have said they’ve wanted for a long time - if you can translate those into jobs, then that has a long-term sustainability impact for the economy. In the longer term, that actually may be more beneficial for investors as well,” she added.
Back in June, Morgan Stanley warned that investors were concerned about the impact of Trump tax breaks being rolled back by the Democrats. There were fears that these might affect investment and employment.
But some market watchers say that candidates often make pledges during a campaign that actually take a few years to materialise.
Mr Song Seng Wun, CIMB Private Banking economist, points out that it would be counterproductive to impose an overly high tax burden on businesses and consumers if the economy does not improve.
He cited the case of Japan, when consumption tax was hiked in October 2019. This then compounded the impact of the COVID-19 pandemic on the economy. Hence, he expects that even if a blue wave does happen, policy on the fiscal front will be "extremely calibrated".
Another issue that investors are keeping an eye on is the ongoing trade dispute between the US and China.
Mr Vasu Menon, executive director of investment strategy at OCBC Bank, said that Mr Biden is unlikely to change Washington’s China policy radically.
But one area where policy could differ, is in the use of tariffs.
"Trump has used tariffs to rein China in, to threaten China. I think Biden might not do that. He’s not in favour of using tariffs. He thinks it’s counterproductive," said Mr Menon.
“The markets have been affected by this trade war, and this tariff war, and so if Mr Biden back tracks on the tariff front, I think that will be a source of relief for the markets,” added Mr Menon.
Investors will also be keeping a close eye on the US dollar, especially if there is increased spending by a new administration.
“If that happens then it’s possible that the medium- to long-term investors’ risk appetite will pick up. When investors’ risk appetite picks up, what happens typically is that the US dollar weakens (as) its appeal as a safe haven diminishes," said Mr Menon.
"On that note, it is possible that a Biden victory which leads to US dollar weakness, may lead to a pick-up in the emerging market, Asian stocks, which have lagged the US stock market,” he said.
The one thing that market watchers agree on is that the need for stability to return to the United States.
“Whether you’re talking about the retail investors or sophisticated investors, institutional investors, fund managers, and asset managers of different sizes, they are fairly uniform in terms of expressing the view that a Biden presidency brings greater stability to the world, is less confrontational and in one catch-all phrase, ‘greater peace and harmony’," said Mr Song.
From an asset standpoint, this could mean less risk and more clarity in terms of a more coordinated response to things such as the pandemic as well, he added.
The one thing that the markets certainly do not like, however, is uncertainty. If there is no clear winner come Nov 3, there is bound to be volatility in the stock market, experts said.