[US Presidential Election and KOSPI] ① Is a Tantrum Coming... Biden and Return Match "Volatility Expansion"

Financial Market Turmoil During Trump's 2016 Election Win
Volatility Expansion Inevitable in This Year's Presidential Election
Risk Exposure Must Be Reduced as Election Approaches

'Trump Tantrum' refers to the phenomenon in 2016 when the global financial markets were shaken following the election of then-Republican candidate Donald Trump as President of the United States. The term combines former President Trump's name with the English word 'tantrum,' meaning an outburst. At that time, U.S. and major countries' government bond yields surged, and capital outflows from emerging markets caused sharp declines in emerging market currencies and stock prices. Additionally, in 2018, the aggressive trade policies of the Trump administration based on 'America First' led to market turmoil amid fears of a global trade war, giving rise to the term 'Tariff Tantrum.' Having experienced several such tantrums during Trump's presidency, the domestic market cannot help but be on high alert regarding the realization of a second Trump administration. Currently, the U.S. presidential race is rapidly reshaping into a showdown between President Joe Biden and former President Trump. It is virtually a 'return match' after four years.

On November 9, 2016, the KOSPI plunged 2.25% and the KOSDAQ dropped 3.92% compared to the previous trading day. The KOSPI 200 Volatility Index (VKOSPI), known as the 'fear index,' surged 16.59%. The KOSPI, which had maintained the 2000-point level in October, broke below 2000 in November and fell to around 1950 after Trump's election was confirmed, fully reflecting the Trump election risk in the market. Around the election period in October and November, the KOSPI fell nearly 3%. In contrast, during the 2020 election when the Biden administration took office, the KOSPI rose 11.32% in October and November.

Volatility due to the U.S. presidential election is also expected to be inevitable this year. Kim Dong-won, Head of Research at KB Securities, said, "With the U.S. presidential election scheduled for November 5 this year, uncertainty over the election outcome will continuously impact financial market volatility," adding, "Moreover, if the Republican Party gains majority status in the concurrent Senate elections, pressure for fiscal tightening may intensify."

Ko Tae-bong, Head of Research at Hi Investment & Securities, said, "There will be many political events leading up to the November election, and each time the winning probability of presidential candidates changes, it will affect prices," adding, "Considering geopolitical risks and subsidy payments, President Biden is relatively better for the Korean stock market, and beneficiary sectors vary significantly. The market will reflect changes in winning probabilities in stock prices while awaiting the election."

KOSPI Volatility Expected to Increase as U.S. Election Nears

Volatility is expected to increase further as the election approaches. Oh Tae-dong, Head of Research at NH Investment & Securities, said, "Expectations for beneficiary sectors related to U.S. presidential candidates' pledges will be reflected in the first and second quarters of 2024," adding, "However, stock prices in election years typically peak in September, with volatility intensifying in October, one month before the election, and the stock market often undergoing corrections."

If Trump is re-elected, the domestic stock market is expected to be affected more negatively than positively. Kim said, "If Trump wins, there is a possibility of strengthening sanctions against China, and this tension will be reflected in the Korean stock market, which still has high exposure to China," adding, "Uncertainty regarding the green investment policies promoted by the Biden administration is also expected to increase."

The burden of policy risk is expected to be greater than four years ago. Kim Hyung-ryeol, Head of Research at Kyobo Securities, explained, "The important point is that whoever wins will be re-elected and it will be their last term," adding, "The burden of policy risk is expected to be greater than in the past four years, and the U.S.'s fiscal stimulus capacity is likely to weaken compared to the last four years." Ko added, "Regardless of who is elected, the U.S. fiscal deficit issue must be resolved," and said, "Whether through subsidy reductions or tax increases, fiscal issues will become a topic of debate again next year."

As the U.S. presidential election is expected to be a variable affecting the stock market throughout the year, cautious investment is necessary considering the timing and influence of variables. Ko said, "It is necessary to check the U.S. election schedule and understand when the impact will be significant," adding, "After the January caucuses begin and primaries are held in 16 states and territories culminating in the 'Super Tuesday' in March, interest in the election rises, then subsides, before entering the election phase in the third quarter with candidate confirmations and TV debates leading up to the November election." He continued, "Depending on the election outcome, there will be significant differences in the Korean stock market and sectors, but since it will be difficult to be certain of the results even until election day, it is recommended to reduce risk exposure as the election event approaches and invest when prices are believed to have sufficiently reflected the risks."

Since it is difficult to predict which side will win, it may be necessary to focus on sectors or stocks that are not influenced by a particular candidate's victory. Oh said, "Stocks in the tech sector, which are relatively free from policy risks and have high expectations for earnings improvement, are expected to show a gradual upward trend," adding, "Investments in artificial intelligence (AI) and automation remain valid as both the Trump and Biden administrations view them positively."

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