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Brokerages remain bullish on Asian equities despite US poll cliffhanger

From an Indian market perspective, the US election driven trends could imply that Indian IT stocks and Reliance Industries (RIL) could gain traction and cyclical stocks including banks might lag

Topics
Asian markets | US Presidential elections 2020 | Markets

Puneet Wadhwa  |  New Delhi 

The final result may remain unknown for a few weeks, which will likely cause disruptive headlines and some near-term volatility
The final result may remain unknown for a few weeks, which will likely cause disruptive headlines and some near-term volatility

Most brokerages remain bullish on Asian equities from a medium-to-long term perspective despite the US poll cliffhanger that may see Joe Biden occupy the White House amid protest and court cases by the Republican Donald Trump.

As things stand, Joe Biden is projected to emerge on top with wins in key states of Michigan and Wisconsin. Meanwhile, US President Donald Trump has filed lawsuits in Pennsylvania, Michigan and Georgia with their campaign demanding access to the vote counting sites and reviewing each ballot. This in effect means the Republicans will still control the Senate.

Meanwhile, the Federal Open Market Committee (FOMC) meeting decision will take place in a volatile environment this week. Analysts say the election outcome could determine whether the US Fed will have to provide more monetary policy accommodation to offset any shortfall in fiscal policy support to the economic recovery. Against the Biden Blue-wave scenario, expected a total stimulus of around $4.3 trillion, which included infrastructure plan of $2.1 trillion. However, a much smaller package totaling $1.3 trillion (infrastructure plan of $300 billion) is now expected under the divided Congress.

"Prospects of much less fiscal stimuli ahead amid a divided and gridlocked US Congress will likely weigh on US economic growth (and, by extension, global growth), and thus particularly hurt the prospects of value / cyclical / financial stocks geared to global economic growth. A Biden win without full Senate support also means less risk of regulation and higher corporate / personal taxes," wrote Chetan Seth, Nomura’s Asia ex-Japan equity strategist and Jim McCafferty, their joint head of APAC equity research in a note.

The final result may remain unknown for a few weeks, which will likely cause disruptive headlines and some near-term volatility. This, Nomura said, will be an opportunity to accumulate Asian equities for the medium-term. Better virus handling trends in Asia relative to the US and Europe; strong government and listed corporate balance sheets, especially in parts of North Asia; stable political climate, especially in parts of North Asia/India; and strong recovery in economic data post Covid-19 pandemic are the key reasons Nomura favours Asian equities in the global context.

The big variable

From an emerging market (EM) perspective, the big variable to watch is the dollar, says Mahesh Nandurkar, managing director at Jefferies. The US dollar view is of a small appreciation near-term, but given that US Fed remains in an easing mode, Jefferies believes funds flow into EM should sustain.

"From an Indian market perspective, the US election driven trends could imply that Indian and (RIL) could gain traction and cyclical stocks including banks might lag. As the Indian economy growth picks up pace, banks would become a good proxy on India growth recovery theme and we retain our overweight on the same," Nandurkar said.

Over the past 20 years, Democratic tenures have been much better for markets, argues Aditya Narain, head (research) for institutional equities at Edelweiss Securities, and have delivered 16 per cent higher returns on average in the first year, while Republicans have been better over the immediate term (1 week /1 month).

table

"Biden presidency would see greater policy shifts, and market / business realignments. That it comes amid a raging pandemic, not to mention the sharp policy and personality differences, suggests there will be some wait-and-watch. Beyond the immediate, we would continue to play global reflation, information technology (IT) and pharma," Narain wrote in a co-authored November 4 report.

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First Published: Thu, November 05 2020. 13:00 IST
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