We spiral towards the final week of the US presidential election as a few communities in rural Pennsylvania, Michigan, Wisconsin, Georgia, Arizona, Nevada and North Carolina decide the fate of the world. The electoral college votes of these seven swing states will determine who sits in the White House come January.
And it is sobering to know that it will be the uncommitted splinter of the Democrat Left who are upset with Joe Biden’s policies on the Palestinians — whose non-aligned vote for a third-party candidate — and even others who have crossed over into “Arabs for Trump” could tip Michigan over to Republican Red. That Donald Trump, as the then president, supported Israeli Prime Minister Benjamin Netanyahu, recognised Jerusalem as the capital of Israel and ordered the US embassy to move there, gaining this vote is deeply ironic.
Or the Women for Trump supporters, or the evangelical movements who are okay with a convicted felon acknowledged by many of his own supporters as a liar — but “authentic anyway”, with a track record that on its own will turbocharge the MeToo movement, whose appointed Republican justices stacked on the Supreme Court rolled back the landmark Roe versus Wade abortion rights judgment made 50 years ago.
Or African-American (men) for Trump who can’t bring themselves to vote for a woman of colour, who might make the 0.5% difference in Georgia. The irony of the auto unions who declared for Republicans that makes Pennsylvania too close to call, and the storied Washington Post, whose owner, Jeff Bezos of Amazon, sitting on the commercial fence, ensured that for the first time in four decades, they would not endorse a Democrat candidate.
True, Trump, the Champion who can stand up to China’s President Xi Jinping, was the one who started to contain China with his trade war tariffs. Yet, it was incumbent Joe Biden who has built on that with his range of protectionist industrial policies. He could make a deal with his fellow strongman (and some suspect friend) Russia’s Vladimir Putin to cut off President Volodymyr Zelensky and Ukraine and hit the defence industry, which is booming. He also is viewed by disadvantaged voters as better for the economy, although the inflation that he once unleashed through tax cuts for the rich, protectionism that raised import costs and added to the deficit that compounded under his previous watch is almost tragic-comic in an unfolding Shakespearean third act. Except it’s not funny.
The same MAGA (Make America Great Again) supporters who rail about the cost of healthcare have their fearless leader campaigning to take out what little insurance Obamacare provides for them. But maybe it does not matter. Because their heartstrings are stirred with the hate and divisiveness spewed non-stop directly, in your face and on WhatsApp ads — often illogical, irrational and even self-contradictory. The head may not matter. Or perhaps they are just trying to register to win Elon Musk’s US$1 million ($1.3 million) lottery per day for registered republican voters in these seven states. Even if there may be a legal loophole, despite the US election commission calling it out, the spirit is already in the air.
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Markets are pricing for more inflation, with both the two-year Treasury heading north at 4% and the 10-year at 4.2%. The USD index has rallied 4% in this same period as the “Joy” Kamala had in her honeymoon bounce in the polls fell back three weeks to D-Day. In the meantime, last week’s Chew On This which postulated Tesla being a possible “Trump Victory Trade”, has already popped up over 30% in a couple of days as polls in three Blue swing states turned Red. Will this last?
Not quite a storm yet
Chew On This spent the better part of the last few columns trying to convince itself to stay on the sidelines after lightening up on local blue chips, the Straits Times Index and Chinese ETFs in the September to early October rallies, and remain in an uncomfortable position of being not fully invested. Save for rolling some into more defensive REITs in anticipation of further Fed cuts into 2025 come what may.
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As US Treasuries sold off, with rate expectations going up in line with Trump’s polling, the STI stayed sticky, with our three local banks holding the index up at around 3,600 points, whilst other cyclicals like Sembcorp Industries U96 , Singapore Telecommunications Z74 , and Keppel took a breather. On the Nasdaq, the Magnificent Seven found a resurgence, with Tesla propping up this group from behind. Other cyclical sectors that led the S&P to new highs since April have started taking a back seat as speculation about Trump’s inflationary impact dragged. In line with our local tech proxies, which are not really the AI darlings — Venture Corp and AEM Holdings AWX reverted to pre-September rally levels. They look more interesting from here if the fickle hearts of the market start to flutter again for earnings and cash flow following the election.
Chinese ETFs and locally listed stocks with China exposure have largely retraced a significant portion of their gains. CapitaLand China Trust AU8U did, in its exuberance, reach 88 cents but has pulled back to 75 cents. Or Yanlord Land’s 60% pop to 80 cents is now settled back in the mid-60 cents.
The Lion-OCBC Securities Hang Seng Tech and China Leaders ETFs, too, have given back half of their gains but settled at a higher base camp. In the long march (Chew On This, issue 1159, Oct 14) back to pre-Covid-19 levels, as we have postulated, it will not be one way. Whilst lower than some of the prices I have sold into on the rally, I am still not tempted to get back in yet.
One can hypothesise whether China prefers Trump in the White House because, as a deal maker, he might be up for a deal versus the Democrats, who operate more consistently on policy principles and will find it hard to shift any grand bargain with The Donald might not be economically favourable for China after all. China Bulls point to the fact that the US has a national debt of US$35.68 trillion as of October, growing by almost US$2 trillion a year. It is the second largest owner (behind Japan) of US debt and may be able to play hardball in any such negotiation. Perhaps it might work if they coordinated with the Japanese, these China bulls hope - an even more unlikely scenario for the hopeful, is my view.
At least in the near term, the yen continues to weaken (nicely timed with my next vacation in Japan that takes us past Nov 5 in Nagano), and the Japanese are ok with that, especially after their recent election debacle where the ruling Liberal Democratic Party lost its parliamentary majority and may have to be in a minority government. My only solace is that the correlation between the Nikkei 225 and the LDP’s fortunes is not high, as I am still riding some residual Japanese ETFs since my Dark Horse call last year.
Our REIT index has, however, extended an originally shallow retracement from September highs lifted by Kamala Harri’s joyous polling numbers.
Fortunately, thus far, the pullback has been well within the dividend yields that they pay. So, I will be compensated by the upcoming quarterly- or half-yearly dividends, and I will wait for the next turn, hopefully in 2025. The fact that the net asset values for a number of them are still at between 30%-50% discount to their respective book values makes it tempting to buy into the pre-election wobble on yield asset classes. Fortuitously, Parkway Life REIT launched its first-ever equity placement to acquire its first 11 European assets for an accretive deal for shareholders, just before the worries set in. It was well oversubscribed, with placees, including myself getting 30% or so allocation.
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The main dish of the US elections will be served on Nov 5. Would the Joyous Kamala hearts prevail, and the complex messiness of our bifurcated world continue to chug along? This was encapsulated by Russia’s recent hosting of the BRICS Summit (an intergovernmental organisation comprising Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia and the United Arab Emirates) in Kazan with President Xi and India’s Prime Minister Narendra Modi, an occasion that even had the UN Secretary-General António Guterres shake Putin’s hand on the sidelines incensing Ukraine. In addition to the escalating Middle Eastern conflict, Israelis have acknowledged their reciprocal strike in Iran last week.
But markets will expect a status quo and easing of rates and inflation — with hopefully a soft and not a hard landing in the making. An overdue mild correction post-Nov 5 in US markets, with easing rates and the US dollar will be positive for the emerging markets, the STI and my rotation into REITs says my head clouded with my heart for sanity and reason to prevail.
Or will MAGA hearts come to rue their choices after the electoral dust has settled? A mercurial and uncertain President Trump in the Oval Office will be good for (some) businesses, especially the crypto bros and Silicon Valley venture capitalists like Peter Theil. Beyond that, anything goes.
It is a reasonable bet that, following any euphoria that may follow, assuming the election is actually called the morning after (it has every reason to be contested all the way till January), the overextended US bull market will correct after. The one truism in markets is that investors do not like uncertainty. The great market hope in Trump may be more volatility ahead. In this case, I take comfort in my present holding path.
Chew Sutat retired from Singapore Exchange S68 after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
