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Web Exclusive: US polls and its impact on global markets

US to continue to face problems with long-term debt and deficit issues, say analysts

Puneet Wadhwa & Surabhi Roy  |  New Delhi/Mumbai 

It seems that the outcome for the US Presidential election will be a photo-finish between the two main candidates – incumbent Barack Obama and his rival, Mitt Romney. The campaigning for the November 6 elections ends today.

According to Pew Reserach, a non-partisan "fact tank" that provides information on the issues, attitudes and trends shaping America and the world, Barack Obama has edged ahead of Mitt Romney in the final days of the presidential campaign. Obama holds a 48 per cent to 45 per cent lead among likely voters.

The Pew Research Center's final estimate of the national popular vote is Obama 50 per cent and Romney 47 per cent, when the undecided vote is allocated between the two candidates.

So, what does the outcome hold for the global equity and bond markets? Have the markets already discounted the poll outcome?

Says Dr. Andrew Freris, Chief Investment Strategist (Asia), BNP Paribas Wealth Management, “The US presidential election will involve a major political problem in resolving the "fiscal cliff" issues irrespective of who wins.”

“Just like in September 2011 when there was a short-lived bloodbath in the US markets over the related issues of the US downgrade and the raising of the fiscal ceiling, the inability (or unwillingness) of the US politicians to resolve the fiscal issues before the elections, means that after 8 November and till 31 December (the fiscal deadline), there could be a lot of volatility in all equity markets,” he adds.

“There will be some changes in policy, particularly concerning fiscal issues, but overall, despite the fact that Americans are presented with a very clear choice between Obama and Romney, I don’t think we are going to see any big shifts in any particular direction, irrespective of the outcome,” noted Alastair Newton, Senior Political Analyst, Nomura in a report dated October 29.

“For big picture policy, although the election is important, we are still going to be dealing with a deeply divided Washington, where resolving some of the major challenges facing America like long-term debt and deficit issues is going to be a severe challenge,” Newton points out.

“The Indian equity market is mainly driven by the earning season and US Presidential election. The result season is certainly giving us grounds for an up move. The main drivers of markets will be reform,” says Saurabh Mukherjea, Head of Institutional Equities, Ambit Capital.

“Obama's victory would be mildly positive for us, as it would mean less uncertainty. Moveover, either of the candidates is not ready with any economic policy reforms. At the current levels, I am bullish on stocks like L&T, Ashok Leyland, Sobha Developers, TTK Prestige, BOB and Cummins,” Mukherjea adds.

Says Deven Choksey, MD, K R Choksey Securities, "Obama's reform agenda focuses on building a strong infrastructure lead growth model for the US economy and Building local manufacturing base by utilizing domestic infrastructure for promoting employment, spurring consumption and increasing tax revenues. I believe that growth initiatives will eventually benefit countries like India and China, which who would gain most out of infrastructure led consumption demand in the US."

"There may weakening $ which would help Re gain in the near-term, which would help India bring down its CAD (current account deficit). A reduction in the CAD will result in lowering of inflations, which could prompt the Reserve Bank of India to slash rates," he adds.

What about the bond markets?

“Economic data from the US has generally been positive in the last few days and this should be positive for an Obama election victory. However, an Obama win should in theory be a positive for the US bond market – this as his win may trigger a risk-off theme as investors worry about talks on dealing with the fiscal cliff being more difficult and Wall Street generally favouring a Romney win,” stated a Rabobank Rates Strategy report on November 02.

“With this in mind, it would initially appear that a strong payrolls number would lead to a bid for US bonds. However, this benefit may be largely netted off by the unemployment rate increasing and so, in the end, the market impact of these numbers could be much more muted than has widely been expected,” it added.

First Published: Mon, November 05 2012. 11:58 IST