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Emkay Global in its latest note said a full Donald Trump sweep would likely be the most equity-positive outcome
Kamala Harris and Donald Trump. (Image: REUTERS)
US Presidential Elections 2024: Battle lines are drawn in a hard fought election battle in the United States (US), the outcome of which will be known this week. However, global financial markets, analysts said, have already begun preparing for Donald Trump’s victory.
Emkay Global in its latest note said a full Donald Trump sweep would likely be the most equity-positive outcome, with a favorable corporate tax regime, in addition to low regulatory burden. Any gridlock would be technically equity market-negative. Such a situation would be the most bearish outcome for the US spending, implying good news for bonds, Emkay Global said.
Despite a rapid rise in Republican sweep (Presidential nominee: Donald Trump) betting odds ahead of the upcoming US election, Emkay thinks there is more steam to the volatility and Trump trade.
“While a Trump presidency will be more noisy and volatile, we assess that a Harris presidency will not differ too widely in certain key areas. Medium term — watch out for structurally higher volatility in global inflation and growth ahead, implying the conventional playbook of ‘Buy the dip’ or ‘time rallies’, during the sustained equity bull markets of the ‘Great Moderation’, need a re-watch,” it said.
A rising term premium will likely be the next driver of higher yields, whereas forex wars would be the biggest asset class risk that could unfold over the coming years, it said. For India, forex and rates will be the first casualty with equities only temporarily rejoicing the Red sweep, Emkay said.
“Stock markets may temporarily rejoice the spillover of US equities rebound in case of a Red sweep. Not to mention, China equities would bleed due to increased market uncertainty and it could also be tactically positive for India on the FPI positioning and flows front. However, there will be challenges sustaining that rally globally, and domestically as well. Our equity strategy team believes that a Red Sweep would probably trigger a short-term rally but its sustenance depends on earnings momentum and valuations, both of which are weak,” Emkay said.
“A Democratic Sweep could trigger a fresh wave of selling and a significant correction from here (5 per cent) should be bought into – the impact on the Indian economy and markets is marginal. The medium term play for India may not differ in either Democrat or Republican regime,” Emkay said.
Emkay said as the world navigates, the imminent period of higher growth and inflation variability in the world may probably redefine the conventional investing playbook. The India investing strategy may be no different, even as it enjoys some structural growth levers against emerging market peers.
“Geopolitically, India faces a tricky period in its US relationship. The nature of challenges depends on which candidate wins. A Harris presidency would likely be a continuation of the Biden doctrine, though she is an unknown quantity at this time, the long-term strategic partnership would continue. There would be, however, some immediate issues surrounding the recent incident involving Khalistani extremists,” Emkay Global said.
The big challenge of a Trump presidency would be the tariffs – though China is the main target, India will also feel the effects.
Also, the impact of Trump’s domestic-oriented policy is a key imponderable at this point, Emkay Global said.
Ajit Mishra – SVP, Research, Religare Broking said the market is expected to remain sensitive to foreign fund outflows and a subdued earnings season. Investor attention will also be on developments in US markets, especially the upcoming US elections on November 5 and the Federal Reserve’s policy meeting on November 8,” he said.
“We believe Harris’ win will be neutral / mean continuity for the economy, equities, and other asset classes. Trump would have a reasonable impact on emerging markets (EMs), equities, and currency due to de-globalisation. Amongst EMs, we expect relatively positive impact for India in the long-run,” wrote Anjali Verma and Navaneeth Vijayan of Phillip Capital in a recent note.
A Democratic clean sweep would put into play policy proposals like corporate tax hikes and strict antitrust laws, HSBC said, which might weigh on US equity markets. Uncertainty about regulation, particularly on big tech and AI, they suggest could also hit market sentiment.
Harris’ victory with a divided Congress, however, would most resemble the status quo with minimal policy changes, and would expect markets to refocus on the current goldilocks backdrop.
“A gridlock scenario could result in higher uncertainty, especially regarding tax policies. If Donald Trump wins with a divided Congress, risks of a more serious escalation in trade tensions could weigh on global equities,” said Alastair Pinder, head EM and Global Equity Strategist at HSBC.
In terms of the overall domestic and foreign policy impact of Trump 2.0, the most positively impacted countries, according to Nomura, are Israel, Russia, Saudi Arabia, India, Australia and Japan, while the most negatively impacted are China, Iran, Mexico and Ukraine.
Market Performance
The US and Indian equities, however, have rallied during both Trump 1.0 and Joe Biden’s regimes. While the S&P 500 and the NASDAQ moved up 70.2 per cent and 142.9 per cent under Trump 1.0, both these indices gained 50.8 per cent and 36.8 per cent under the Biden administration, as per Bloomberg data.
The Sensex and the Nifty back home, on the other hand, gained 82.3 per cent and 73.6 per cent under Trump 1.0, and moved up 59 per cent and 64.5 per cent under the Biden administration, data shows.
Elections in the US will be held on November 5.
Disclaimer:Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
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