What a Harris or Trump Presidency could mean for Aussie investors

Australia’s future success is closely tied to who controls the White House. Here’s how a Kamala Harris or Donald Trump presidency could impact the ASX.

The looming US election is set to have a significant impact on markets, with a democratic victory likely the better outcome for investors in the ASX, experts have said.

When Americans take to the polls on Tuesday November 5, there are two likely outcomes. The first is a “red wave” where Donald Trump wins the White House and his party controls congress.

The other is a Kamala Harris victory is likely to mean she wins the White House but will have to work with a republican-controlled Congress.

According to AMP Capital’s Dr Shane Oliver, history shows US shares have performed better under Democrat rather than Republican presidents with the best outcome being a Democrat president and Republican House and/or Senate.

Historically, the best outcome for investors is a Democrat President and a Republican-controlled Congress. (Photo by Logan Cyrus and Brendan Smialowski / AFP)

“US shares have done best under Democratic presidents, with an average return of 14.4 per cent per annum since 1927 compared to an average return under Republican presidents of 10 per cent per annum,” he said.

Democratic victory

The current market predictions are not factoring in a “blue sweep” of the democrats winning congress - made up of the Senate and the House of Representatives. In the most likely scenario, she would have to work with the two houses to get legislation passed.

“A Harris victory would mean a continuation of the status quo – unless she raises the corporate and capital gains tax rates,” Mr Oliver said.

“Raising these tax rates is unlikely though unless Democrats win both the House and Senate, but even then, it’s difficult to get through as Biden found. Trump would be far from the status quo though.”

A Kamala Harris victory will mean the status quo for markets (Photo by Jon Cherry / GETTY IMAGES NORTH AMERICA / Getty Images via AFP)

Kamala Harris would likely continue many of the Biden administration’s policies, influencing sectors differently and should have a positive impact on stocks in clean energy, EVs, healthcare, technology and infrastructure.

IG’s Market analyst Tony Sycamore said the easiest outcome for markets to understand is a Harris win will see America stay on its current path, including the Federal Reserves current rate cutting cycle, and growth of the US share markets.

Year-to-date the S&P500 has returned 20.30 per cent, up 962.62 points, at the time of writing.

“If Harris wins, the Australian dollar will springboard, as the Aussie dollar is pricing in a Trump victory and tariffs on China.

“For the ASX200, the path of most certainty is Democrats win. Uncertainty is bad for markets as they don’t know what will happen next.

“The more stable outcome is the democratic victory,” he said.

Republican victory

If Trump was to take the White House back, it is predicted he would win with a “red sweep” where the Republicans would also control Congress.

This would give Mr Trump much more freedom to enact his policies, including tax cuts and deregulation.

Mr Oliver said this could “help boost the supply side of the US economy via a boost to productivity.”

“On the other side, he would include higher tariffs resulting in higher import prices, lower labour force growth and potential moves to weaken the Fed’s credibility, only adding to inflationary pressure,” he said.

A Donald Trump victory will see sweeping policy reform that could negatively impact the ASX 200. (Photo by CHANDAN KHANNA / AFP)

Mr Trump’s second term would likely favour energy stocks including oil and gas, defence, finance through regulation and automotive through tariffs.

According to Mr Sycamore the impact on Australia will really depend on the order of Trump’s policies being passed into law.

“When Trump came in 2016, the stock markets globally rallied very strongly because he announced these tax cuts, fiscal stimulus and the stock markets loved that,” Mr Sycamore said.

“But then in 2018 and 2019 he announced tariffs, which brought the mood down quite considerably.

“The quickest thing for him to do is impose tariffs [on China] and that would be a particularly bad situation for the ASX 200.

“This is because tariffs slow global growth, increase inflation, they are particularly bad for resource stocks and not good for the Aussie dollar,” Mr Sycamore said.

China Stimulus

The biggest danger for Australia is Trump’s plan to levy a 10-20 per cent tariff on all imports to the US without exemption. Mr Trump has pledged a 60 per cent tariff on Chinese imports. Tariffs not only increase the cost of imported goods, passed on to consumers, but spark retaliatory tariffs from other countries.

In the case of Australia, the value of trade with China rose to $327 billion in 2023, according to government data, underlining its importance as a key customer for our iron ore, coal, and other key exports such as tourism and education.

The Australian share market could fall if further tariffs are introduced on Chinese products Picture: NewsWire Photos/ Richard Wainwright/ POOL

This means Australia could be an innocent victim of a potential China vs. the US trade war, with the resource heavy ASX 200 likely to fall.

Mr Sycamore said the outcome on Australia could be the difference between how much the Chinese government stimulates the economy and the size of the tariffs Mr Trump puts on the market, should he win the White House.

“Coming at the same time [as the US election] we have the Chinese National People’s Congress which will run Monday to Thursday. They will wait (to see) who gets into the White House and respond accordingly.

[If Trump wins] it would see a larger stimulus package to cushion the blow from the tariff,” he said.

Part of this would be through debasing the currency to make exports more attractive and announcing a larger stimulus package.

Mr Sycamore said the most likely outcome for the ASX is negative in a trade war scenario but if China “fires a bazooka of a stimulus package, it could only be a marginal problem for the ASX 200.”

Originally published as What a Harris or Trump Presidency could mean for Aussie investors