How US vote can change our destiny
A Biden win could be just what’s needed as China trade tensions boil over.
Imagine just for a moment if there had been no US election this week: investor news would have been utterly dominated by bad news out of China.
At home we would have seen the threats to introduce trade bans on coal and copper splashed across all media.
Overseas, the last-minute suspension of what was meant to be the biggest sharemarket float in the world — Jack Ma’s $US37bn ($51bn) Ant Financial IPO — would have prompted consternation as to whether China-based share exchanges can be trusted to work in a conventional manner.
But the market — in common with the wider world — has been transfixed by an election that perhaps we can “call”, at least price movements on major indices suggest a narrow win by Joe Biden where the Democrats don’t control the Senate.
So for now we have a relief rally — Wall Street jumped 7 per cent in the first four trading days of the week. The tech-heavy Nasdaq tested new records and traders at least are putting serious money on the termination of the Donald Trump presidency.
A narrow Biden win — as opposed to a big Biden win — would mean Wall Street does not have to price in a major lift in corporate tax, the further sidelining of oil and coal assets or break-up attempts on Big Tech stocks.
As Paul O’Connor at fund manager Janus Henderson suggests, the next round of stimulus in the US may not be as big as expected. “However, for the major US equity indices, these effects have been dwarfed by the rebound in healthcare and technology stocks and other sectors that have been celebrating the view that Joe Biden’s plans for higher corporate taxes and regulatory intervention will be smothered by a Republican-led Senate,” he says.
In fact, the ultimate proof of the heady “party on” atmosphere across asset markets may well be the Lazarus-like rebound in bitcoin, the ultimate speculative asset. The digital “currency” went as high as $US20,000 in Christmas 2017, then had fallen as low as $US3000 a year later. Since then it has climbed back to $US15,000 — and it’s up 10 per cent since the US election count started.
For Australian investors looking at global markets — typically those with overseas-focused funds or individual Wall Street listed stocks — the key outcome of the US election is neatly summarised by Magellan’s Hamish Douglass: “There will be no tax rises, no massive regulatory reform, no big left agenda … so checks and balances are in place.”
But there is much more afoot than US issues.
As Douglass added, a Biden presidency would offer “more moderate discussions globally”.
And just now that’s exactly what Australia needs — a detente on China trade tensions. Australia’s trade relationship with China has worsened throughout the past year as Beijing becomes ever more difficult.
The ham-fisted suspension of the Ant group float hours before it was due to come on the boards is just the latest in a long list of market interventions.
As my colleague — and former China correspondent — Glenda Korporaal put it: “Pulling the Ant float confirmed what has been apparent but not quite appreciated — that the risks of doing business for foreign investors in China are going up.”
Imposing trade limits on barley or lobsters is one thing, moving onto coal and copper is another level altogether.
On Friday, China’s own Global Times — a Communist Party publication — confirmed that imports of coal and copper from Australia may be suspended from this weekend.
Obviously, the ultimate danger for Australia is that iron ore gets caught up in the trade war, as it is our most important export to our most important trading partner and the backbone of sharemarket strength for Rio Tinto, Fortescue, BHP and a range of smaller stocks.
China is quite simply the next big concern for our local market and a more conciliatory Biden administration might just be the diplomatic breakthrough we need but cannot achieve alone.
For the moment, though, it’s all speculation, and the reality is that a pandemic-battered, low-growth, highly uncertain sharemarket may be buoyed by offshore trading patterns, but the pathway ahead is exceptionally difficult to plot.
Market traders are more volatile than ever — witness the turmoil in US futures after each successive press conference from Trump later in the week as he increased his attacks on enemies and railed against “fraud” in the election system.
On Friday, Shemara Wikramanayake, CEO at Macquarie, presented the investment bank’s annual results. Macquarie reported that profits fell 32 per cent.
But Wikramanayake — the smartest among the smartest in the room — would not offer forward guidance on future earnings to analysts.
As she explained: “The extent to which these conditions will adversely impact our overall financial year 2021 profitability is uncertain, making short-term forecasting extremely difficult.”
And that’s coming from the head of a bank that has built its reputation on being one step ahead: a bank that actually got bigger during the recent crisis.
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