The Biden bounce

For emerging markets like South Africa, we have reason to celebrate. The Trump presidency was volatile, and emerging markets get punished during periods of volatility. Additional stimulus will help, plus with Biden at the helm of the US, “risk on” is likely to be more prevalent than “risk off”, which is good news.

Nov 18, 2020

4 minutes

Jeremy Gardiner
For emerging markets like South Africa, we have reason to celebrate. The Trump presidency was volatile, and emerging markets get punished during periods of volatility. Additional stimulus will help, plus with Biden at the helm of the US, “risk on” is likely to be more prevalent than “risk off”, which is good news.

The fast view

  • The US election is over, and markets seem pleased with the result.
  • Biden will deliver the stimulus as soon as he can, but with the split in the House of Representatives and the Senate, the quantum will be less than it would have been with a “blue wave”.
  • Additional stimulus will help, plus with Biden at the helm of the US, “risk on” is likely to be more prevalent than “risk off”, which is good news.
  • A vicious resurgence of COVID-19, particularly in the UK, Europe and the US, with the accompanying lockdowns, has been causing markets anxiety. Fortunately, we should start seeing multiple vaccines becoming available soon.

The US election is over, and markets seem pleased with the result. There’s an element of surprise to this, as most analysts in the run-up to the election seemed to err towards a Trump victory being better for markets. Whilst the market reaction might have surprised some, there was no surprise in the result. For once, everyone – the polls, the bookies, the editorials – all called Biden to beat Trump before the election, and overwhelmingly so. If anything, the Republicans did better than most were expecting, although Trump doesn’t seem to see it that way.

For emerging markets like South Africa, we have reason to celebrate. The Trump presidency was volatile, and emerging markets get punished during periods of volatility. Whilst world markets will always have a level of volatility, it won’t be deliberately created under Biden. Additional stimulus will help, plus with Biden at the helm of the US, “risk on” is likely to be more prevalent than “risk off”, which is good news.

“Risk on” is likely to be more prevalent than “risk off”, which is good news.

Of course, Trump is still president for two more months, so anything is possible. He’s likely to remain litigious, but it is unlikely that the Republicans will stand firmly behind him in his war. They were expecting to lose the presidency, so the result isn’t a surprise to them. In fact, they received more votes than expected, successfully preventing the predicted “blue wave”. It’ll be interesting to see just how far Trump pushes the legal challenge. If he wants another crack at the White House in 2024 (which apparently he does), it would make a lot more sense for him to leave with a graceful “I’ll be back…!”

The Congress is potentially going to be split (a Democratic House of Representatives and a Republican Senate). This could actually be beneficial, as it will dilute some of the potential “market-unfriendly” tax increases promised by Biden, and corporate curtailment that had markets previously worried.

It’ll be interesting to see just how far Trump pushes the legal challenge.

Allow me a final comment on the election. While daughters-in-law don’t have much influence in presidential decision-making, the fact that Joe Biden’s son Hunter is married to a South African, means that at the very least he will know where we are!

So, with the US election over, markets can now turn their focus to the other three things that have hiked volatility over the past months.

The first is US stimulus. Both parties have been debating this for months. Rumoured to be in the region of $2 trillion, it was on and off, with Trump finally offering it as a “carrot” that he would deliver if he won. Biden will deliver the stimulus as soon as he can, but with the split in the House of Representatives and the Senate, the quantum will be less than it would have been with a “blue wave”. We can expect it only in January, and that will bring some New Year cheer.

The other issue worrying markets is that Brexit is back. It’s attracting less attention than previously because there’s a lot more going on at the moment, but there’s no doubt that a no-deal Brexit would cause some level of shock, particularly in the UK. The deadline was mid-October. Apparently, the problem is fishing rights – the French want to fish in British waters, and the Brits are saying no. However, a no-deal Brexit suits no one, so expect them hopefully to cobble something together fairly soon.

Multiple vaccines should start becoming available soon.

And finally, a vicious resurgence of COVID-19, particularly in the UK, Europe and the US, with the accompanying lockdowns, has been causing markets anxiety. If there is a silver lining, it is that the lockdowns should bring some reduction in the numbers. Most importantly, multiple vaccines should start becoming available soon.  We saw the market reaction to the Pfizer vaccine, and now Moderna. Expect these announcements to come through at least two a month going forward, which should make everyone feel better.

So, a fair amount for markets to look forward to as we head into the new year. Whilst one can’t necessarily predict a better year, it would take a lot for 2021 to trump the devastation that was 2020.

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Watch Jeremy Gardiner in conversation with Clyde Rossouw from our latest Taking Stock event:

View all Taking Stock recordings here:
https://ninetyone.com/en/south-africa/events/taking-stock-spring-2020

Authored by

Jeremy Gardiner
Director

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