A winner finally emerged on the fifth day of the US election count. Joe Biden has won the presidential race, following his victory in Pennsylvania state, which pushed him above the 270 threshold to win. Some were worried about a contested election in the event of a Democrat win. Well, true enough, Donald Trump has filed several lawsuits to challenge the vote count in key swing states such as Arizona, where the race had been extremely close. However, Trump’s campaign has so far produced no evidence of widespread irregularities or fraud, merely his “baseless” allegation of the integrity of the votes. Will Trump be able to turn things around? Highly unlikely. Biden’s win grows more decisive each day as the votes are counted, where he is on his way to earning 306 electoral votes, which is 57% of all the electoral votes available.
And the Democrats have retained control of the House of Representatives, albeit with a smaller majority. The fate of the Senate is as yet unclear. With the two Georgia Senate runoff elections to come in early January, it is still possible for the Democrats to flip the Senate. It is more likely, however, that the Republicans will retain control — which simply means a divided government. You may ask how this affects the market. Well, in a divided government, it will be more difficult for Biden’s agenda to be passed — we see a lower probability of higher taxes and regulatory changes in the near term, to the benefit of sectors such as Technology and Healthcare.
What about the stimulus package? So far, there has been no firm timeline to pass the bill. With Republicans still controlling the Senate at this point, it is difficult to see the Democrats’ dreams of a US$2.4 trillion (RM9.8 trillion) relief bill being passed. Instead, there is strong support for the US$500 billion bill, which the Democrats deem insufficient to protect American households, as it excludes the monthly US$1,200 stimulus cheques to US households and funding of the US states that are struggling under debt to keep up payroll and development goals. Therefore, we are likely to see them conceding to a US$1 trillion bill, given that the rise in the number of cases across the country is calling for more support for hospitals and schools.
While a stimulus will boost the economy, the absence of one does not detract from the US recovery story. A Biden administration will focus on containing the spread of the virus and enforcing strict standard operating procedures that will allow the economy to reopen safely, paving the way for growth to return. This should result in a 5% expansion of gross domestic product in 2021, a complete recovery from the devastation of 2020.
Post-election, the vaccine deployment will be the next inflection point for markets. Asset prices rallied close to 9% (the Standard & Poor’s 500 index was up 7.3%, the Dow Jones Industrial Average was up 8.3%, and the Nasdaq was up 6.9%) in the five days to Nov 10, on the simmering election pressures and on the news from Pfizer that its vaccine candidate has a 90% efficacy rate — way higher than the required 50% to 60% effective rate expected by US infections disease expert Dr Anthony Fauci. The vaccine discovery may signal the beginning of the end of the pandemic.
Now, the real battle is getting the vaccine to the people (more than seven billion infectable humans populate this planet). Assuming that the vaccine can be approved by the fourth quarter of 2020, it will still take time — from establishing the supply chain to the production of the vaccine to reaching people like you and me. Based on the projected timeline, we may see complete innoculation only by 2024 — if no other challenges pop up (for example, a mutation of Covid-19). Nevertheless, we expect to see wide distribution of the vaccine to start early in the second quarter of 2021.
What does all this mean to investors? Well, for starters, they can focus on undervalued sectors to benefit from the vaccine play. We should look past the short-term risk, as US economic recovery is set for 2021. It is important that investors ensure they are well diversified to ride out potential turbulence, especially as we see the US recording more than 10 million Covid-19 cases and rising. Investors can use gold as a hedge to market volatility, as market swings could get wilder in the coming months.
For those who want to avoid US market risks, a good option is to turn your attention to China, which has posted stronger growth figures and managed to keep a lid on the infection spread. China’s solid economic trajectory will be a key tailwind for Asia’s growth. Coupled with Biden’s more constructive and multilateral approach towards US-China tensions, this will result in reduced uncertainty for Asian businesses and investors.
Michael Lai is vice-president of wealth management research at OCBC Bank (Malaysia) Bhd