Analysts have been sharing their views open how the markets would react to a Trump or Biden win. In the event of a Trump win, risk assets will carry on its upward trajectory and we will likely see new highs of the indices led by FAANG. On the other hand, a Biden win will lead to a decline in valuations of FAANG and risk assets because taxes will likely go back to the pre-Trump era and earnings will have a steep decline. That said, all other equity markets in the world will likely take a hit from either result of the US elections. In particular, we will be discussing potential outcomes of STI in the event of either a Biden or Trump win.
Biden win will likely benefit Singapore greatly
With Biden as the US’s Commander-in-Chief, we will be sure to see more handshakes between world leaders. That would certainly remove tensions between countries but also, more importantly, restore confidence in the global financial markets. STI relies primarily on trade and finance, therefore with reduced geopolitical tensions, we will see a faster recovery in our revenue streams. In addition to that, a Biden win might adjust the interest rates upwards and that would benefit STI’s top 3 constituents, which are banks. Overall a Biden win will definitely tip the scales to Singapore’s favor as it spurs a faster and fairer recovery for the world in the post-COVID era.
Trump win will maintain status quo
Trump has been an effective president for the past 4 years but the impact on American has not been nearly as equitable as expected. However, his decisions have led to global interest in the US market. The S&P 500 index has climbed more than 1000 points since Trump became president. Consequently, the US market’s dominance has led to a lesser appeal for indices like STI because of our lower risk profile in general. In other words, unless the Singapore Govt switches style and starts borrowing, which is unlikely, then our long term consolidation might persist.
How should STI investors react to either outcome
With a lower risk profile and appeal in general, STI will continue to stay modest from now until Election Day. With both outcomes only affecting potential upsides, investors in STI have little to worry about downsides. Though I must point out that the likelihood for SG to go into further red is possible if more businesses continue to burn cash and take up more debt. Otherwise, if the impact of the pandemic has been muted or if the vaccine is proven effective, then STI is sure to come back with a vengeance.
Closing Thoughts
Trump’s belief that the world “owes” the US is not completely wrong because the way debt has increased in the recent decade has really benefited investors outside of the US. That said, we should not assume that Trump’s endorsement of risk assets is sustainable simply because the modern monetary theory cannot be sustained in the long run without massive inflation. Therefore, investors should enjoy the bull run while it lasts before reality sets in with the tone of news channels changing overnight. A Biden win might start massive selling but perhaps that would tame the level of greed in the markets and help restore some faith in the global financial system. Nevertheless, investors of STI can expect some volatility in the near term and stay tuned for our weekly market outlooks posts for more updates.
