Market Overview

5 November 2020

Which Companies May Win More from the U.S. Election Gridlock

The only manifested gainers from a lasting uncertainty surrounding the final U.S. election results seems to be, for now, some European, Asian and other non-American stocks. For example, the German Xetra DAX 30, as well as the French CAC 40 and pan-European Euro Stoxx 50 indexes are climbing higher for the fifth straight trading day in a row. China’s Shanghai Composite (SSEC) also added around 3% compared to last Friday's closing price. The Shenzhen Component rose 1.72%, and Hong Kong’s Hang Seng Index soared 3.25% today. Even in Australia, the broad S&P/ASX 200 index gained 1.28% today and around 3.5% since the beginning of the week. 

As investors await to see who will be recognised as the legitimate political leader of the United States after a series of lawsuits claimed by the juridical team of the incumbent President Donald Trump, the U.S. S&P500 and high-tech Nasdaq indices are also in overdrive, going up on the path of least resistance, maybe because the stock markets are used to growing year by year under both Republican or Democratic administrations inside the White House. So, it is not a big surprise that after the previous technical correction large amounts of the financial flows were redirected outside the United States in this suspended situation.

At the same time, it may be argued that if formally leading Biden wins the election, then a corporate tax increase promised by him may temporarily play against the market and negatively compensate for the yet-to-be-adopted stimulus package, which may add to rival attractiveness of assets from Europe or Asia. In case that Trump succeeds in court, the U.S. market could get an additional burst that may continue a four-year long "Trump-rally" by inertia, which also could quickly help other markets. 

Perhaps for these reasons, Europe and China are now getting a fair slice of the investment pie. For example, Hong Kong stocks of Alibaba jumped 5.7% for the next 24 hours after Election Day, even though Chinese regulators halted the Shanghai and Hong Kong arms of Ant Group’s IPO, an affiliate FinTech unicorn company of Alibaba Group, which was expected to become the world’s biggest IPO listing. Of course, Chinese companies are partly hoping for tariff relief on the American market in case of Joe Biden's arrival to the White House. A situation with a rather weak next President may not be considered so bad for Chinese manufacturers and IT-companies, as any next U.S. President could be tied in his decisions after the nation was so divided politically.

Meanwhile, the Democrat candidate Joe Biden claimed victory in the states of Wisconsin and Michigan earlier in the day, which inches him closer to the White House. However, the decisive battle of 2020 has not yet been lost by Mr Trump. So, it seems that he has a real chance of successfully challenging the alleged oddities with the ballots in the courts: as in Michigan when all of a sudden 128,000 votes for Biden appeared after one of the official counting updates, but for the same short period there were not even a single vote for Trump. This could be considered a clear reason to request the re-counting of all votes in this state. There was also a strange situation in Pennsylvania where Trump was leading 56% vs 42.5% by half a million voices before the very end of counting all in-person votes. Trump’s advantage in this situation may be seen as too large to overcome with mail-in ballots. However, the margin narrowed by European midday today to just 2.6%, but still in favour of Trump, and so far the sitting President also has a chance in Nevada, where 25% of the ballots have not yet been counted, and the difference is only 8,000 votes in favour of Biden. The gap in the key Wisconsin state is also only 20,000 votes, so the Trump team demanded a recount there. It may take a couple of weeks to figure out all these nuances.

As for the U.S. market, mainly those companies whose position are doubted are growing in price. For a long time these have been big techs, with Google, Amazon and Apple as bright representatives, and retail chains or food and drink companies, which do not require their consumer to spend a lot of money. It's hard to expect that profits of companies like Coca-Cola or Walmart, Starbucks or McDonalds would critically depend on who is the President of the United States or even on the pandemic. The last thing that people of large cities and small towns of the world may save on, even in a tight economic situation, is a fast-food breakfast or a subscription to a channel with fairy tales and cartoons for their children like Disney. That's probably why shares of all the companies listed above added between one and two percent yesterday, and some of these companies have even grown more since the beginning of the week. For example, a battery car maker Tesla or shale oil companies and banks are potentially more dependable on the election results.

In Germany, especially in the retail sector (+1.75% until noon), pharmaceuticals and healthcare sectors (+0.75%) plus financial services (+0.95% for the first two trading hours) led shares higher today. The technology sector (TecDAX index) climbed almost 2%, in addition to 2.49% on Wednesday's close. As for the French market, it would be worth a separate mention that CAC 40 futures price is already approaching its peak levels of mid-October despite more than 10% losses in price at the very end of the month which were caused by natural worries, as it all came after the rather strict orders by Palais de l'Elysee for the partial quarantine measures throughout the country.

ArcelorMittal is also in European focus after the Luxembourg-headquartered company, which produces around 5% of the world's steel, beat the average Q3 2020 expectations for its financial results. After the spring lockdown lows, the steelmaker said its core profit fell 15% from a year earlier to $901 million, compared with an average forecast of $838 million in a company-compiled poll. CEO Lakshmi Mittal remarked that steel markets had recovered from "a very challenging second quarter", with particular improvements in profits in Brazil and its unit grouping South Africa, Kazakhstan and Ukraine.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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