US elections results

 31 October 2020

Dear Fellow Investor,

Next Wednesday morning early election results from the US elections will be announced.  If there is a clear winner between Trump and Biden expect an immediate snap back rally in world markets. As uncertainty is now removed it makes no difference who wins.

In the medium term, if Biden wins it could mean less tension with China and would benefit Asian markets. If Trump wins expect US markets to rise. Biden plans to dramatically increase personal and corporate taxes and business regulations  which would hurt earnings of most companies while Trump wishes to lower taxes and regulations  which is good for stocks.  With Trump consumers will have more money to spend and businesses more money to invest. Both Biden and Trump wish to spend on infrastructure and that should boost commodities.

VIX Index  is the fear index. It measures the prices of options traded on the CBOT . As fear and uncertainty increase the price of options move higher as hedgers pay up to protect their equity portfolios. Notice the spike in March  when equities collapsed.  Notice the current VIX spike. Not as dramatic as the March spike. This is due to a resurgence of Covid, lockdowns in Europe, UK and increase of Covid cases in the US. It also reflects the battle over fiscal stimulus in the US.  After the election the stimulus issue should be resolved.

The stimulus will be at least 2.2 trillion USD and that will boost markets.  As this is money out of thin air, it could result in inflation and a weaker dollar.  Holding some gold perhaps 10 % could be prudent.  

“Although all eyes are on this important event, investors should be relieved to know that the outcome is unlikely to significantly impact any investment thesis.

Businesses that are primed for growth and can adapt to this pandemic qualify as good candidates to own no matter how the election turns out.

While there may indeed be a short-term knee-jerk reaction based on whoever wins, over time, choosing the right companies means that they will do just fine over the long-term”.   Davis Kuo, Smart Investor  

Despite the extreme pessimism in our local market there are positive signs.  Our current account remains in surplus, exports are rebounding quickly, the Ringgit has stabilized and there is good demand for Malaysian bonds. Progress is being made on vaccines for Covid as several are in late stage clinical trials.   A breakthrough vaccine could be a market recovery catalyst.

Keep safe

Bill

China is opening up for tourists. Already 7 countries including Malaysia are on the list. Air traffic is China is also getting back to normal.  Hopefully Malaysia will soon get back to normal.

Bronze lion in front of the Hall of Supreme Harmony in Beijing Forbidden City