Markets are pricing a ‘normal’ US. Just wait for the Trump-Harris White House

Will Joe Biden or Donald Trump lead the US for the next four years? Amid claims of mass voter fraud, until the state results are certified it could still go either way
Markets are on a high, assuming a return to a ‘normal’ presidency. But with a route to a Trump-Harris White House, or a President Pelosi, they could become unnerved

Neil Newman

Published: 7:00am, 23 Nov 2020

Why you can trust SCMP

VOTEBUSTERS!

If you thought we would be done with the US presidential election on November 3 and you could move on from the circus, think again. It is certainly not over officially, and the mudslinging will drag on for months.

The total votes of the 50 states that make up the United States have not yet been certified. If you remove from the official tally those states where Republicans are contesting the results, Donald Trump appears to lead Joe Biden with 232 to 227 electoral college votes. And the contest between the two political camps has the media in a frenzy.

“Never let the truth get in the way of a good story” is an adage that comes to mind when looking at recent media coverage of election politics in the US, it seems at times common sense has been thrown out in favour of outrageous accusations and stories.

Sometimes outrageous stories can be a barrel of laughs, for example “World War 2 Bomber Found On The Moon” – one of my favourites, and presumably it was on the dark side so you couldn’t see it. Published by the Daily Sport which billed itself as “the world’s most outrageous newspaper”, it was complete nonsense but harmless.

The Sunday Sport. Never let the truth get in the way of a good story.

I understand that giving readers in either camp what they want generates loyalty and revenues for the media, but the fists proverbially flying in US newspapers during the 2016 and 2020 elections, and the ferocity of comments on social media posts that potentially reach millions more than The New York Times, have the potential to do far more damage.

What we’re seeing today is much more sinister, and it appears that reporting “fake news” has few or no consequences, such as comparing Trump’s office to Nazi Germany or Joe Biden’s family to The Sopranos. When one outrageous baseless story has run its course and been dismissed, the press comes up with the next one.

Accusations of voter fraud in presidential elections is nothing new. This time there are rumours of dead people voting, fake ballots and interference with computer tabulations. Last time around it was accusations of Russian interference, hacking and treachery by Trump.

The US presidential race is still on, at least until enough states have certified their results to give either candidate the required 270 electoral college votes. In sowing doubts about the election outcome, Trump’s goal appears to be to deny Biden the necessary votes.

The results from six key states are being contested: Wisconsin, Michigan, Pennsylvania, Georgia, Nevada and Arizona. The offensive is led by Trump’s lawyer and former New York mayor Rudy Giuliani. Three key dates are approaching, each of which could bring an unexpected turn of events: on December 14, pledged electors for each candidate, determined by the popular vote in each state, meet to cast their votes. On January 6, both chambers of Congress meet to count the votes and name a winner. On January 20, Trump’s first presidency hits a hard stop.

US President Donald Trump. Photo: Reuters

The decision of who becomes the next POTUS could yet go to a “contingent election”, triggered by a 269-vote tie in the electoral college. This is where things get interesting.

In the event of an electoral college stalemate, and if no winner can be decided by January 6, then a special vote in the House of Representatives can decide who is the next president and a vote in the Senate decides who will be vice-president. Theoretically, Trump could be voted back in as president with Kamala Harris as vice-president – or Joe Biden and Mike Pence become a team. Messy.

If nothing has been worked out by January 20, then the current speaker of the House, Nancy Pelosi, becomes president.

I AIN’T ‘FRAID OF NO GHOSTS, BUT I AM ‘FRAID OF THE MARKETS

The S&P 500 reached an all-time high this week, and the FTSE-100, Topix and Hang Seng Index all held up remarkably well given the toxic Covid-19 environment. Investors are clearly hoping for less turbulent times ahead under a Biden administration, and perhaps some mending of broken trade relationships. Since the lows in March, the best performing markets are the three largest economies: US stocks are up 60 per cent, Japan’s are up 54 per cent, and China’s are up 26 per cent. The renminbi has also rallied against the US dollar, and the Shanghai SE Composite index is at recent highs despite the continuing investment restrictions being put on select Chinese shares by the Americans. Such an optimistic market sentiment has often proved fragile.

With political polarisation reaching fevered conditions in the US, the legal action to overturn the election results shows a disrespect for the democratic process. The lengths to which supporters of each candidate are willing to go is an open question.

03:51

As it happened: US Election 2020

With half of the country behind Trump, half the country behind Biden, and the whole country whipped into a frenzy by social media and the press, the outcome either way could be very bad and hints at further unrest in the US. The big worry is that the mood deteriorates further, and at the extreme results in a coup d’état or even a US civil war – which is an extreme tail risk. If the worst-case outcome can be avoided, it could still hurt stock markets,

Never has there been an American election so divided and undecided so late in the day. Over two weeks have passed, and the demonstrations and fighting continue, both verbally and physically. A mass demonstration in Washington last weekend resulted in a brawl between Trump supporters and counterprotesters, resulting in one person being stabbed and fireworks being thrown into a restaurant where Trump supporters were dining.

Is this all over bar the shouting, or has the circus just begun if Trump continues to refuse to concede? Either way, equity investors would be wise to take a little off the table right now.

Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets

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