ASIAN markets edged up slightly on Tuesday (Nov 5) as investors trod cautiously amid heightened volatility in anticipation of the US presidential election.
Market sentiment was likely tempered by uncertainty over potential shifts in US economic policy, trade relations and stimulus measures – all of which could ripple through global financial markets.
Lorraine Tan, director of equity research for Asia at Morningstar Research, noted that jitters are emerging in the local equities market ahead of the high-stakes election.
The Straits Times Index closed up 0.3 per cent or 9.57 points at 3,581.61.
Across the region, major indices were mixed at Tuesday’s close. Hong Kong’s Hang Seng Index was up 2.1 per cent, and the Shanghai Stock Exchange Composite Index closed 2.3 per cent higher.
Sean Teo, a sales trader at Saxo, noted that China is holding a major economic meeting this week, aimed at boosting growth with a reported 10 trillion yuan (S$1.9 trillion) stimulus. This, coupled with positive data that showed the country’s services sector experienced its fastest growth in three months, lifted Chinese stocks on Tuesday.
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Japan’s Nikkei 225 rose 1.1 per cent, and the FTSE Bursa Malaysia KLCI inched up 0.3 per cent. South Korea’s Kospi was the outlier, closing 0.5 per cent lower.
The stock markets’ performance came after Wall Street stocks ended Monday lower, and lower-than-expected jobs data was released last week.
The US economy added just 12,000 jobs in October, far below projections – boosting hopes for a Federal Reserve interest rate cut when officials gather later this week.
As investors brace for possible swings, attention remains on sectors and regions most likely to be affected by the election’s outcome, with volatility expected to persist in the lead-up to results.
For instance, in Singapore, ST Engineering’s share price has fallen from its peak in mid-October at S$4.81, which Morningstar’s Tan said could have coincided with media reports that Donald Trump had closed the gap in polls with Kamala Harris.
“ST Engineering is sensitive to high interest rates, and the common view is that a Trump presidency would lead to interest rates staying higher for longer, as his inclination to raise tariffs could be inflationary,” she added.
While the equities market may trade sideways in the near term, IG market strategist Yeap Jun Rong believes that any weakness may offer opportunities for dip-buying.
He reckons that the focus will shift to economic fundamentals once policy uncertainty clears. In general, he also expects the markets to move in a positive direction come year’s end.
Volatility in a neck-and-neck race
In a frantic last push before in-person voting on Tuesday, Harris visited Michigan – a key battleground state – to rally the public, and appeared on television programmes and at football games to garner support. Meanwhile, Trump visited Pennsylvania, North Carolina and Georgia.
Polls show the race as neck and neck.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, highlighted that the major risk is that a Harris win could be heavily contested by Trump, leading to more uncertainty and potentially violence and chaos, which would affect sentiment.
With the race to the White House too close to call, analysts believe that volatility in the Asian markets “should be of no surprise”.
Jason Kuan, director of investment research and advisory at CIMB Singapore, said: “Leading up to when the election results are announced, we should expect more volatility as markets tend not to like uncertainty.”
He noted that while markets may record larger swings post-election, Asian markets are likely to take the lead from the US markets – at least in the short term.
Paul Chew, head of research at Phillip Securities Research, noted that a Republican sweep could put pressure on bond yields and inflation if significant fiscal spending or aggressive import tariffs are introduced.
He said that in the short term, Singapore’s position as a trade hub is likely to be negatively impacted if import tariffs were imposed on Asean.
But if tariffs were applied uniformly across major exporters and accompanied by softer currencies, the impact will be muted, he added.
“A more significant concern is the long-term impact if tariffs are increasingly used as a political tool, with uneven tariffs imposed on countries that compete with the US interests,” he said.
CIMB’s Kuan said a Trump win will likely see equities perform better, while a Harris win will likely see fixed income outperform, led by tariffs and taxes.
But a victory by either is unlikely to change the direction of US policy towards China, said Morningstar’s Tan and senior equity analyst Wang Kai.
“We also anticipate (Trump’s) usual style of bombastic rhetoric could lead to market volatility…
“However, given that China’s equity prices have been beaten down mainly due to domestic economic issues, we also expect some divergence in performance should China’s domestic consumption recover as the government adds stimulus,” they said.
Impact on commodities and US dollar
Oil prices rose almost 3 per cent after the Organization of the Petroleum Exporting Countries and its allies said they would extend their supply cuts for another month in December. They had been delaying output hikes on worries about slowing demand in China and the US.
Adding to the oil rally, the US dollar softened, with recent polls suggesting Harris “might be gaining an edge”, said Stephen Innes, managing partner at SPI Asset Management.
“A weaker greenback typically fires up Asia’s demand for oil, and the prospect of a Harris upset has only added fuel to crude’s recent climb,” he added.
Regarding the US dollar – which has pulled back slightly following a four-week rally – Saxo’s Teo believes that a Trump victory could strengthen the greenback, while a Harris win may have the opposite effect.
Meanwhile, gold prices held their ground on Tuesday, with spot gold up 0.08 per cent at US$2,738.88 per ounce, and gold futures up 0.07 per cent to US$2,748 per ounce, as at 6 pm (Singapore time) on Tuesday.
“Gold’s outlook is clearer, serving as a safe haven, inflation hedge and benefiting from growing US debts. Additionally, expectations of gradual rate cuts are likely to boost gold,” Teo added.
Marcus Garvey, Macquarie Group’s head of commodities strategy, noted that a key factor for gold is whether there is a sweep – where the presidency, Senate and House of Representatives consist of either all Democrats or all Republicans.
In either scenario, there is likely to be looser fiscal policy than in the case of a president who is constrained by Congress, said Garvey.
“If there is a contested outcome, that could also benefit gold in the short term, given the uncertainty it could generate,” he added.
