[Good Morning Stock Market] Ultra-Close US Presidential Election, New York Ends Higher... What About Korea? Sectoral Differentiation Expected

[Asia Economy Reporter Oh Ju-yeon] As the U.S. presidential election reaches a razor-thin margin, domestic and international stock market participants are closely monitoring the election results. In this context, the New York stock market closed higher, drawing attention. The Dow Jones Industrial Average rose 1.34% from the previous trading day to 27,847.66, the S&P 500 index increased 2.20% to 3,443.44, and notably, the Nasdaq index surged 3.85% to 11,590.78.

As vote counting progressed, the likelihood of Democratic candidate Joe Biden's victory increased, which was seen as having a positive effect on the stock market. While this could be a positive factor for the domestic stock market as well, there is analysis that the increased uncertainty due to potential election disputes could have a negative impact.

[Image source=Yonhap News]

◆ Seo Sang-young, Kiwoom Securities Researcher = The U.S. stock market rose despite the possibility of legal disputes and ensuing confusion as Biden's chances of winning increased. This is presumed to be due to eased concerns over corporate tax hikes as the Republican Party is likely to retain control of the Senate.

The worst-case scenario of legal disputes over the U.S. presidential election results has become more likely. Biden overtook in Wisconsin, which has 10 electoral votes, and Michigan, with 16 electoral votes, as mail-in ballot counting continued. This increased Biden's chances of winning, but tensions escalated as Trump filed lawsuits to halt vote counting. This could lead to increased political uncertainty in the U.S. Meanwhile, with the Senate election expected to result in Democrats holding 47 to 49 seats, the Senate is projected to remain under Republican control. This indicates that the large-scale stimulus package the market had hoped for is realistically unlikely. Also, changes in tax policies such as corporate tax hikes are expected to be difficult. As the market's expectation of a 'Blue Wave' diminished, concerns over antitrust laws and corporate tax increases eased, causing major tech stocks to surge.

The Korean stock market is expected to be positively influenced by the increased likelihood of Biden's victory. However, the heightened uncertainty surrounding the U.S. presidential election is a negative factor. Considering this, a volatile day is anticipated.

First, Biden's potential victory is expected to improve trade-related measures, which is positive for Korea, given its high export dependence. Particularly, Biden's foreign policy tends to prioritize multilateralism and is expected to be more agreeable on trade issues compared to President Trump.

However, the short-term increase in uncertainty surrounding the election is a burden. Additionally, the sharp rise in new COVID-19 cases in the U.S. and the slowdown in U.S. economic indicators raise concerns about economic contraction. Considering this, the Korean stock market is expected to open higher but will likely experience wide fluctuations due to both positive and negative factors, with differentiation among individual sectors.

◆ Park Sang-hyun, Hi Investment & Securities Researcher = As Biden said, the final results need to be observed, but realistically, Biden is expected to become the new U.S. president. Accordingly, financial markets will focus on policy changes after the election, summarized by the keywords green (=carbon zero), emerging markets, and dollar weakness.

The policy that most contrasts Biden with President Trump is related to climate change. Biden has already pledged to rejoin the Paris Climate Agreement and invest $2 trillion in green infrastructure, signaling a strong push for green policies that differentiate him from Trump.

With the energy paradigm shift through strengthened green policies becoming a reality, Biden's election is likely to accelerate global green policies. Coupled with COVID-19 and the digital economy, the green economy or carbon zero will undoubtedly be a key theme in 2021.

Another keyword is the preference for emerging assets, i.e., increased risk asset preference. Even if Biden is elected, the possibility of a breakthrough in U.S.-China conflicts is low. The competition over technological supremacy between the two countries will continue long-term. China’s announcement of the dual circulation policy to achieve technological self-reliance supports this. However, Biden is expected to shift from Trump's unilateral America-first policy to a somewhat conciliatory multilateral diplomatic approach. This is expected to serve as a turning point in U.S.-EU conflicts as well as U.S.-China and other emerging market relations.

The sharp rise in the value of the Chinese yuan and Mexican peso as Biden's chances increased reflects these expectations. The U.S. dollar is also expected to continue its weakening trend. Although the scale may be reduced, additional stimulus measures and expanded green infrastructure investments will increase fiscal deficits, and the easing of America-first policies will exert downward pressure on the dollar. In this dollar weakness environment, the Korean won is also expected to maintain a strong trend.

However, as previously noted, the risk of a governance vacuum in the short term is assessed to have increased the possibility of a negative impact on U.S. GDP growth in the fourth quarter.

This content was produced with the assistance of AI translation services.