Trump and Biden Both Deploy Stimulus Plans... Differences in Scale and Timing Based on Promises
Election Results Impact Investment Landscape... Market Anticipates Blue Wave-Driven Stimulus
Biggest Risk Is Trump's Potential 'Rejection'... Investors Watch Election Closely
President Donald Trump (left) and Democratic presidential candidate Joe Biden during the final TV debate ahead of the U.S. presidential election on the 3rd of next month [Image source=Reuters News Agency]
[Asia Economy Reporter Jeong Hyunjin] The investment landscape will not be an exception to the global shifts expected after the U.S. presidential election. This is because the economic stimulus package, currently being tugged between the White House and the Democratic Party, is anticipated to have a massive impact on the economy in some form after the election. With the fundamentals of the U.S. economy, hit hard by the novel coronavirus disease (COVID-19), yet to recover, the outcome of this U.S. presidential election is expected to be a key factor shaking up the investment landscape for the next four years. Depending on whether President Donald Trump or Democratic candidate Joe Biden wins, the scale, timing, and focus areas of the stimulus package are likely to differ significantly.
The biggest variable currently determining the direction of investment is the stimulus package, expected to exceed $2 trillion (approximately 2,271 trillion KRW). According to reports from the Washington Post (WP) and others on the 22nd (local time), although the likelihood of an agreement on the COVID-19 relief package has increased recently, foreign media assess that the actual passage of the stimulus package before the election is unlikely. Local media report that while both sides have reached consensus on healthcare and direct financial support to American households, issues remain regarding debt relief for businesses and support for state governments.
The Republican Party is opposed to passing the package before the election. WP reported that Senate Majority Leader Mitch McConnell views the stimulus package as a trump card that could determine the political landscape after the election and is opposing its passage before the election to preserve this advantage. If President Trump wins re-election, he could quickly pass the stimulus package with Senate support; if Biden wins, it could be used as leverage to pressure the Democrats in the Senate. Nancy Pelosi, Speaker of the U.S. House of Representatives, who is negotiating with Treasury Secretary Steven Mnuchin, emphasized on the day that "any new package emerging from negotiations with Secretary Mnuchin must have strong bipartisan support in both the House and Senate," highlighting the Republican Party as a decisive factor in reaching an agreement.
Ultimately, the period after this election is expected to dictate the flow of the global economy, including the U.S. Beth Ann Bovino, Chief U.S. Economist at S&P Global, analyzed the current U.S. economy, stating, "Whoever becomes president on January 20 next year will face difficult realities," and "While the U.S. is no longer heading into a recession, employment market indicators show a slow recovery."
◆ Democrats Usually Unfavored by Markets... This Time the Situation is Reversed = In the market, there is strong expectation that if President Trump, who has shown himself as an 'economic president,' wins re-election, he will continue his pro-business policies such as corporate tax cuts and deregulation. However, currently, Trump and the Republican Party want a stimulus package below $2 trillion considering fiscal deficits, which is expected to fall short of market expectations.
On the other hand, experts believe that if Biden wins, a stimulus package exceeding $2 trillion could be introduced. Generally, when a Democratic candidate is elected president, economic regulations tend to increase, which markets do not favor, but for this reason, the market is placing hopes on Biden's victory. Despite Biden's proposals for corporate tax hikes and eco-friendly policies, there is growing expectation that support measures will offset these negatives. Especially if the Democrats gain momentum in the Senate elections held alongside the presidential election, the passage of the stimulus package is expected to accelerate.
The sectors benefiting will also differ depending on the election outcome. If Biden wins, clean energy is expected to be a beneficiary, while if President Trump wins, traditional infrastructure sectors such as metals and mining are expected to benefit. However, retail is expected to be negatively impacted by Biden's corporate tax hike pledge. The healthcare and financial sectors are expected to see gains in different areas depending on the specific policy differences between the two candidates.
◆ The Biggest Risk is 'Rejection'... Uncertainty Likely to Maximize = The problem is that if Biden wins, President Trump may refuse to accept the election results. This risk of increased uncertainty could maximize short-term volatility. This can be inferred even in the current situation where the outcome is unknown. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as the 'fear index,' is above average levels. One foreign media outlet reported that investors are adopting a 'do nothing' strategy while waiting for the election results. Vincent Mortier, Chief Investment Officer (CIO) at Amundi, said, "We are asset managers, not thieves or gamblers," adding, "We do not want to engage in short-term trades based on extreme speculation."
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