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US political stalemate could spell good news for markets

By Sarah Kendell
 — 1 minute read

With spats over the certification of US election votes providing a preview of the challenges Joe Biden faces with a Republican-controlled Senate, a funds management giant has said the political deadlock may be good news for global equities on some fronts.

In the latest episode of Magellan’s In the Know podcast, the asset manager’s head of macro and co-portfolio manager of global equities, Arvid Streimann, said Democrats’ failure to gain control of both arms of Congress means legislation that was likely to see corporate profits kneecapped is unlikely to see the light of day.

“One of the things we were monitoring was the likelihood that the Democratic party would not just win the White House but also control both chambers of Congress,” Mr Streimann said. 

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“As it turned out they did not get all three, they didn’t get the Senate and the reason that’s important is because there was a chance if they got all three arms of government they would push through new laws that would materially reduce corporate profitability. 

“That didn’t happen, and their election result is not strong enough for them to perhaps even have a mandate to launch those new pieces of legislation.”

The President-elect’s control of the US’ two houses of government is already facing tests with a rebel group of Republicans threatening to vote against the certification of electoral college votes confirming Mr Biden’s win.

In terms of the broader economic picture, Mr Streimann added that with a variety of proven COVID-19 vaccines poised to roll out across the globe, investment risks across equity markets had “materially reduced” going into 2021.

“Thinking back to earlier this year when COVID was becoming a pandemic, a lot of people were thinking it’s going to be quite hard to find a vaccine, because we’ve been trying to find a vaccine for HIV/AIDS for decades and we don’t have one of those, so it’s unlikely we’re going to get a COVID vaccine any time soon,” he said. 

“As it turns out the trial results were over 90 per cent effective and that was better than people expected, and it came faster than expected.

“So if we think about investment risk more generally, we would say the vaccination reduced economic risk and thinking about what impact that has had on corporates, their revenue outlooks have improved. 

“With the election, the removal of a large amount of political risk means those revenues which are now more certain should drop down to profits as they have in the past – the risk was that they would be dropping down in a smaller fashion and that risk is off the table.”

 

US political stalemate could spell good news for markets
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