[US Midterm Elections] Political Theme ETFs Examined... Investors' Choices Remain 'Uncertain'

[Image source=AP Yonhap News]

[Asia Economy Reporter Myunghwan Lee] Investors' perspectives on the U.S. midterm elections remain "uncertain." This is due to the fluctuating stock prices of exchange-traded funds (ETFs) themed around the Democratic and Republican parties.

On the 8th (local time), when the U.S. midterm elections began one after another, the 'Democratic Large Cap Core' (DEMZ) ETF listed on the U.S. stock market closed at $23.82, up 4.11% from the previous trading day. On the same day, the 'Point Bridge America First' (MAGA) ETF closed at $38.88, up 0.96% from the previous trading day. 'DEMZ' focuses its investments on companies aligned with the economic policies of the U.S. Democratic Party or those that have made political commitments. Conversely, 'MAGA' is composed of a portfolio of companies associated with the Republican Party.

However, on the previous day, the 7th, the trend was reversed. The Democratic-themed DEMZ fell 2.39% from the previous trading day, while the Republican-themed MAGA closed up 0.68%. Looking at the stock price volatility over the past month, DEMZ rose 7.88%, and MAGA rose 10.11%, with MAGA showing a higher figure.

This midterm election, equivalent to a general election in South Korea, will newly elect all 435 members of the U.S. House of Representatives and 35 of the 100 members of the Senate. Governors of 36 states will also be elected. This election serves as a midterm evaluation of the administration with nearly half of U.S. President Joe Biden's term remaining. Local media reported that the Republican Party is expected to have an advantage in the House of Representatives. However, the Senate race is anticipated to be a close contest.

Securities industry experts believe that the election results could impact financial markets worldwide, including the U.S. SK Securities researcher Joonki Cho stated, "Depending on which party holds the majority in the Senate, policy directions could change significantly, leading to divergent outcomes in the financial markets."

However, from a long-term perspective, a Republican advantage is also predicted. Researcher Cho noted, "When the Democratic Party had a higher probability of holding the Senate majority, the S&P 500 index and 'DEMZ' outperformed, while 'MAGA' underperformed. Recently, with the reversal and widening of victory probabilities, 'MAGA' has shown significant outperformance," adding, "If the election results align with market expectations, this trend is likely to continue in the short term."

Unlike past elections where stock prices tended to rise after midterms, there are opinions that it is difficult to expect an upward trend after this election. Meritz Securities researcher Suwook Hwang said, "It is premature to expect a trend reversal similar to past cases after this midterm election," pointing out that "earnings estimates continue to be revised downward amid a persistent economic downturn."

Meanwhile, the election results are also expected to affect the domestic stock market and industries. If the opposition Republican Party takes control of Congress, the momentum for policies emphasized by the Democratic Party, including the Inflation Reduction Act (IRA), could weaken. On the 8th, related stocks in the secondary battery sector in the domestic stock market closed down collectively due to uncertainties surrounding the U.S. midterm elections.

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