While the majority of the international media called a Joe Biden victory in the lead up to the US Presidential elections, it was still a very close call in the end.
In fact, Trump’s team has already filed lawsuits to dispute the ballots in several states, and the final outcome may remain contested for a while longer. We can expect to be bombarded with news and reactions to Biden’s presidency over the next few days and weeks. For now, Joe Biden is, in all likelihood, going to become the 46th president of the US.
The US President sets the direction of the world’s largest economy – which in turn has a direct bearing on the global economy. Its local and foreign policies also impact nations across the globe – including those roiling in conflict in the Middle East, China the rising superpower, and also Singapore with its open economy.
For Singapore investors, here are 7 things you should know about how Joe Biden’s election win will impact the financial markets.
#1 Will Markets Go Up Or Down?
While the “expected” result was a Joe Biden win, there were still some uncertainties over what to expect in terms of his policies and actions. Overnight, the US stock market has generally reacted positively – with the S&P 500 gaining 2.2% – to Joe Biden’s lead in the race.
The market also expects Joe Biden’s second round of stimulus package to be larger than Trump’s. Biden’s stimulus package is estimated to be about US$3 trillion and it will fund his infrastructure, clean energy and healthcare projects.
In the near term, markets are on the rise. However, Biden also campaigned for higher corporate tax and capital gains tax – which will impact companies’ bottom lines and investor returns. This may spur a future sell-off in stocks.
#2 Investment Opportunities Still To Be Found
Despite the immediate positive sentiments, volatility is to be expected – not just because of the uncertainty over a new US President but also because the Trump campaign has already filed lawsuits in relation to the results. What will transpire is still unknown and the longer it drags on, the worse it is likely to be for financial markets.
For savvy investors who keep close tabs on market prices, the volatility could mean more investment opportunities may arise. However, for those who are unsure and averse to volatility, staying out of the financial markets until the dust settles may be the way to go.
Read Also: What Traders Need To Know If They Intend To Trade During The U.S. Election Period
#3 Sectors That May Emerge As “Winners” And “Losers” Of A Joe Biden Presidency
Green energy may be the big winner in this scenario. While Trump has repeatedly rejected climate change, Joe Biden has championed a “transition from the oil industry (replaced) with renewable energy”. A Biden presidency could be the spark needed for traditional oil and gas industries to transit to sustainable energy, to thrive in the new economic direction.
Sectors related to infrastructure and construction may also see a boost as Joe Biden’s campaign has focused on revitalising infrastructure in the US, including highways, internet access and public schools. These infrastructure projects may also couple with his push to green energy to reduce greenhouse gas emissions in the future.
On the flip side, technology stocks that have seen a meteoric rise in 2020 may have something to worry about. Much has been also been discussed in the media about Democrats targeting large tech companies and social media companies for anti-competitive practices. With a Democrat in power for the next four years, tech companies may have more to handle on their hands.
#4 Biden’s Stance On China
Biden’s approach is expected to be less confrontational than Trump’s foreign policy during his presidency. In the near-term, trade tensions may ease, providing opportunities for investments in Chinese companies.
While there is less fear of more tariffs and aggressive policies disrupting Chinese supply chains, China will still remain a formidable foe for the US – and Biden will have to address it during his term as president. Bringing back quality jobs is one key driver of Biden’s campaign and one possible way of doing so may be to bring home these outsourced businesses.
As we await clarity on Biden’s foreign policies and his stance on China, investors may also wish to review their strategy of investing in South East Asian companies that benefit from China’s supply chain disruptions.
#5 Bonds Yields May Finally See An Increase
Since the start of 2020, bonds have experienced a bull-run due to COVID-19-led fears, suppressing bond yields. With Biden’s victory, and a large stimulus package likely on the way, we may see yields going up as investors’ risk appetite increase.
Regardless, the new presidency’s management of the COVID-19 situation appears to have more impact on bond demand.
#6 Safe Haven Assets Like Gold Will Continue To Be Supported
Traditionally seen as a safe haven asset, gold price has also risen on the back of COVID-19 fears. Similar to bonds, the movement of gold prices would hinge on investors’ appetite for risk, which is based on the management of COVID-19 in the near term.
Another factor in supporting gold prices would be Biden’s larger stimulus package as investors move towards gold as a store of value instead of currency and as a hedge against inflation.
Read Also: Complete Guide To Investing In Gold And Silver With UOB And UOB Gold And Silver Savings Account
#7 The US Dollar (USD) May Fluctuate Depending On The Presidency’s Economic And Foreign Policy
The US currency is an important instrument in the financial markets. It is the default global currency, comprising a significant proportion of foreign exchange reserves globally and used for pricing commodities and fixed income. This is something that China will want to change.
With a possible increase in corporate tax and a larger second-round stimulus package, the USD may drop. Biden’s less aggressive approach to China may also boost the Yuan against the USD.
Currently, the USD is well-supported due to COVID-19 uncertainties. Any news on a vaccine or worsening situation will likely impact the USD more in the short-term.
Focus On Your Long-Term Investment Goals
Many of the points discussed above may only be applicable in the short-term. As new policies and economic direction come out of the Oval Office, expectations may shift. Many of the outcomes also hinge on how the US manages the COVID-19 situation in the near-term.
Nevertheless, Joe Biden’s presidency will only last four to eight years, whereas our investment goals are likely to be several decades-long. We need to continue investing with the long-term in mind.
The US and China are the superpowers in the world today and both economies will continue to provide immeasurable opportunities. The same thing can be said about longer-term projects in infrastructure, technology or renewable energy – we need to invest in trends we believe will grow over several decades.
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