John Woods

Why a Biden presidency and divided Congress will boost Asian stock markets

While Biden is likely to stabilise relations with China, a divided Congress implies a low growth, low interest rate environment that will increase investor scrutiny of Asian equities

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A market dealer works in front of monitors, one of which displays a US election map, at Hana Bank in Seoul, South Korea, on November 4. Photo: EPA-EFE

John Woods

Published: 2:15pm, 11 Nov 2020Updated: 10:23pm, 11 Nov 2020

The US presidential election has been decided – in the eyes of the markets at least – and around the world equities have reacted by surging higher.

A Biden presidency and a divided Congress represent the best of both worlds: a centre-left government likely to repair and soothe the divisive legacy of the previous administration, but one, simultaneously, denied the legislative heft promised by the “blue wave” and thus unable to roll back Trump-era tax cuts or implement aggressive tax hikes. As far as the markets are concerned, it’s a win-win.

Asia’s equity markets, in particular, have responded to the US presidential election enthusiastically. As I write, the MSCI Asia Pacific Index has hit a historic, all-time high. The MSCI Asia ex Japan Index similarly, has hit an all-time high. And importantly for investors in China equities, the MSCI China Index also posted a fresh high on November 9.

Curiously, the previously feared “split Congress” is now being perceived as having a positive impact, at least for Asian markets. Denied a clean sweep, the Democrats’ much-anticipated US$3 trillion fiscal stimulus package is now regarded as history. Treasury yields have slumped, repricing lower expectations for economic growth into 2021. And with the likelihood of interest rates remaining lower for longer, the US dollar too has resumed its downward path.

US Speaker of the House Nancy Pelosi talks to reporters about the impact of the election on the political landscape in Congress at the Capitol in Washington on November 6. With the Democrats failing to gain control of the Senate, chances of a fresh massive stimulus package look slim. Photo: AP

But a low growth, low rates outlook is precisely the environment in which growth stocks – particularly tech – traditionally thrive. In just three days, the tech-heavy Nasdaq index in the US popped nearly 10 per cent.