As of November 5, 2024, Asian markets are experiencing a rise as investors prepare for the closely contested U.S. presidential election scheduled for today. The election features Democratic Vice President Kamala Harris and Republican Donald Trump, with recent Iowa polls indicating a lead for Harris, which has contributed to a weakening of the dollar. This political uncertainty is reflected in the CBOE Volatility Index, which has reached a four-month high of 22, indicating ongoing political risk hedging as traders adjust their positions in anticipation of market fluctuations. Major indices in Europe and the U.S. started the week negatively, with the Stoxx 600 down 0.3% and the S&P 500 down 0.28% [a9e16603].
Equity analysts are divided on the impact of the U.S. presidential election on markets. Trump has proposed tariffs of up to 20% on imports and 60% on goods from China, while Harris plans to raise the corporate tax rate from 21% to 28% and increase capital gains tax for high earners. Analysts believe a Trump win could boost markets, citing past performance following the 2016 election, while a Harris victory may lead to a short-term market pullback. Historical data shows that 83% of past elections have resulted in gains for the S&P 500, averaging an 11.4% increase, which suggests that regardless of the outcome, the market may respond positively in the long term [791a2471]. The FBM KLCI index in Malaysia was up 11.03% year-to-date at 1,615.06 points, with analysts maintaining year-end targets for the index at 1,750 and 1,690. Rakuten Trade has even raised its target to 1,780.
Emerging-market assets have also gained traction as investors reduce their bets on a Trump victory. Currencies from Mexico, South Africa, and Eastern Europe have rallied against the dollar, with the MSCI Emerging Markets Foreign Exchange index rising by 0.2% and equity benchmarks advancing by 0.5% as of 10 a.m. in London on November 4, 2024. A weekend poll showing Kamala Harris leading in Iowa has notably impacted the Trump trade, with the Polish zloty and Mexican peso rising by 0.9%. According to Elias Haddad from Brown Brothers Harriman, this shift in sentiment could lower market volatility if Harris secures a win.
In addition to the election, the Federal Reserve is expected to announce a 25-basis-point interest rate cut following disappointing job creation data. This decision is anticipated to influence market dynamics significantly, especially as analysts predict that the election outcome could also affect China's economic stimulus package. Beijing is expected to unveil measures on November 8, 2024, which may include a potential trillion yuan (approximately US$140 billion) budget increase for local governments and a one-off trillion yuan allocation for banks to address non-performing loans.
Analysts suggest that the outcome of the U.S. election could influence the scale of China's fiscal stimulus package, with a potential increase of 10 to 20 percent in stimulus size if Donald Trump wins compared to Kamala Harris. The National People's Congress (NPC) Standing Committee is meeting concurrently to discuss economic policies, with estimates suggesting around 6 trillion yuan (US$42.7 billion) in special sovereign bonds and 4 trillion yuan in local government bonds may be issued. Goldman Sachs indicates that higher tariffs under Trump could lead to more stimulus, especially as customs data shows the U.S. was China's top market in September 2024, with a 2.16 percent year-on-year increase in shipments.
In Japan, the election results are also expected to have significant implications for the yen and Japanese assets. A victory for Kamala Harris could support the yen, while a Trump win may boost the Tokyo stock market but risk a deeper yen slump. Analysts predict that the yen could appreciate under Harris due to stable economic policies, potentially testing the 150 level against the dollar. Conversely, Trump's policies may initially boost Japanese stocks but could lead to a depreciation of the yen due to proposed tariffs on imports, which would affect Japan's export-heavy sectors. The dollar-yen exchange rate rose to 152.47 on November 5, 2024, with the Topix index rebounding by 0.8%. Strategists predict that the yen could slide toward 160 if Trump wins, as his policies might initially help Japanese exporters but could introduce tariffs that harm Japanese stocks. Delayed election results could also increase yen-dollar volatility, highlighting the heightened market uncertainty surrounding the election. Regardless of the outcome, heightened volatility is anticipated in Japanese markets due to the election results.
In the UK, the election outcome is also expected to influence personal finances, particularly in relation to mortgages, pensions, and savings. Paul Dales from Capital Economics suggests that a Harris win may lower UK mortgage rates, while a Trump victory could raise them due to higher inflation. The Bank of England's base rate is currently at 5% and is expected to drop to 4.75%. The strength of the pound may be affected by the election result, with a Trump victory potentially weakening it. Pensions, especially defined contribution types, may see volatility depending on U.S. market performance. Historical data suggests election results have minimal long-term impact on investment returns.
Markets across Asia have seen gains, with Shanghai, Hong Kong, Sydney, Seoul, Singapore, Taipei, Wellington, and Bangkok all reporting increases. However, markets in Manila, Mumbai, and Jakarta have declined. Additionally, oil prices have risen around 2% amid OPEC+ supply cuts and ongoing geopolitical tensions involving Iran. The recent increase in Treasury yields, which rose by 50 basis points due to inflation concerns, has contributed to a decline in global shares, particularly impacting emerging markets like South Africa, which saw a drop of 3.5%.
As the financial landscape continues to evolve, investors are urged to remain vigilant regarding the implications of both political dynamics and economic indicators on market stability. The interplay between the election outcomes and central bank policies will be crucial in shaping the economic outlook in the coming weeks. [b0657b53][a49aa3ab][5bb38c20][2c7b1921][cee7309e][5b60df6f][75a3624a][6c1ff58c][eac7a68a][9d560864][fd9454e5][e493ec64][d0f66544][a604d1bd][b6e73659][791a2471]