The recent nail-biting US Presidential Election has seen Democratic contender Joe Biden receiving a projected 279 votes against President Donald Trump’s 214. Citadel CIO George Herman and Chief Economist Maarten Ackerman provide an analysis of the markets, currencies and what the future holds for global economics post the election.
Democratic contender and former vice-president Joe Biden sewed up the nail-biting United States (US) election over the weekend with a projected 279 Electoral College votes against President Donald Trump’s 214 (Source: BBC and CNN). That’s after results were estimated for 46 out of 50 states. Pro-Republican broadcaster Fox News, Bloomberg News and Qatar-based Al-Jazeera, meanwhile, puts this at a more generous 290 votes in Biden’s favour, against 214 for Trump.
While votes are still being counted, and vigorously disputed by the Trump campaign over allegations of voter fraud, Biden has been moving forward as the US’s president elect and planning his ascension to the White House in 2021.
The final, official results will only be confirmed after the Electoral College formally casts its votes on 14 December 2020. In the interim markets have responded, and the world is gearing up for a different administration and an easing of the uncertainties that defined the Trump years.
The initial market reaction to a Biden win was positive, according to Citadel Chief Investment Officer George Herman and Chief Economist Maarten Ackerman – effectively a celebration of the removal of uncertainty and Trump’s “lead-by-Twitter approach”. But, as those who tuned into the Citadel Asset Management US Presidential Election webinar on 11 November 2020 heard, even an election of such global significance as this does not impact economic fundamentals overnight.
“What is important are the policies that will play out in the next four years,” explained Ackerman, who pointed to a possible back-step from the walls and divisions that were build up over the past four years.
“The result is the best we could have hoped for,” he added, noting that Trump’s failure – as yet – to concede should not be regarded as a big issue. Although Herman did point out that the continued 25% probability that Trump still had a route to retaining the presidency continued to create a risk scenario.
A FRIENDLIER ‘NEW NORMAL’
Whichever way the election went, risk was always going to be inherent in the outcome.
While the negative headwinds to global trade associated with Trump’s US-China trade war are likely to abate, Republicans were seen as being more business friendly. “The markets will feel Biden is less market friendly. The Democrats are talking of hiking taxes on the corporate side and for the wealthy. However, Biden and the Democrats will probably be more supportive of global trade,” explained Ackerman. “We may see a friendlier attitude towards Asia, without undoing Trump’s work since the Democrats also back diversification out of Asia.” This could create something of a tailwind for Africa, given the continent’s close trading ties with Asia.
What did encourage the markets was the fact that the Senate race looks deadlocked, which would act as a potential handbrake for issues such as tax hikes and increased spending on social programmes, which may increase debt.
While the Democrats have, seemingly, retained their majority in the US House of Representatives, the Senate will only be decided in early-2021, but is currently split 50-50. Such a divided Congress creates balance, Herman said. “The markets see that as hampering any party being profligate in its spending,” he noted, adding that this was the reason the US dollar did not weaken as much as had been expected.
Herman was quick to note that any market reaction in response to the election was typical of the impatient algorithmic nature of modern-day trading, where markets are linked and directly correlated to one another. “So we see markets reprice in minutes in the same fashion. For long-term port managers that makes true diversification hard to come by,” he said.
What was of more long-term importance was the backdrop against which the US election took place: with surging COVID-19 cases across Europe and the US. It was notable that days after the election US pharmaceutical firm Pfizer and German biotech company BioNTech came out with the news of a “90% effective” vaccine. The markets were quick to respond to this potential elixir.
This, explained Herman, was indicative of the fact that “right now the markets are searching, digging for a post-COVID world in a Biden presidency which is calm and offers that holiday-type feeling where everything is sorted out again”.
But will it be all roses and sunshine?
WHAT CAN SOUTH AFRICA EXPECT?
Bearing in mind the need to approach current events not from a short-term view, but rather with a long-term lens, Ackerman indicated that “a Biden presidency should be positive for emerging markets, so we [South Africa] shouldn’t waste this opportunity”.
This made South African President Cyril Ramaphosa’s plans to foster a more attractive investment destination of critical importance. “We have definitely seen foreign direct investment (FDI) as a percentage of GDP increase over the past two years compared to the Zuma administration,” said Ackerman. “This is a green shoot which is moving in the right direction. But to get FDI going, reforms are needed. I think the plans are definitely there, we need to see the execution.”
Aligned to the importance of implementation was, added Herman, the positive developments becoming evident in the fight against corruption with an arrest warrant having just been issued for ANC Secretary-General Ace Magashule and the arrests of two senior Hawks officers for their involvement in promotions fraud.
The market responded positively to the Magashule matter, said Herman, and while this may lead to some short-term political uncertainty it does show that Ramaphosa is delivering on his promises. “We’ll be tracking these developments closely,” he said.
In conclusion Herman said, “it’s far from over”, noting that “we’ll probably only get the final numbers in January 2021 so it will keep us busy throughout the festive season”.
As always, Citadel maintains both a close eye on market movements and a long-term approach to the growth and protection of your wealth.