Today - Tuesday 8 November 2016 - is an important day for the United States, and perhaps even more important for the rest of the world. Around 140 million American voters are expected to show up to vote for the 45th president in today's US presidential election. The US presidential race, a tough battle between Hillary Clinton (Democrats) and Donald Trump (Republicans), has a major impact on financial markets across the globe. In this column we discuss and follow the latest developments regarding the US presidential election on Indonesian stocks and rupiah.
In order to win the US presidential election a simple majority (270) of the 538 electoral votes are required. US Congress is scheduled to certify the electoral result on 5 January 2017, while the new President and Vice President are scheduled to be inaugurated on 20 January 2017. Voting on Tuesday 8 November begins, generally, at 11:00 am and noon GMT (6:00 am and 7:00 am ET) and finished between midnight and 1.00 am GMT on 9 November (7:00 pm and 8:00 pm ET). Timings vary for each state.
Over the past two weeks there occurred heavy volatility in global financial markets. While initially Clinton enjoyed a comfortable lead in the numerous polls, last week's announcement that the US Federal Bureau of Investigation (FBI) reopened its investigation into Clinton's email activities while in government caused a shift. Before this announcement markets had already priced in a Clinton victory and therefore a big selloff occurred when Clinton's lead in the polls waned. However, after FBI Director James Comey stated - on 6 November - that there is no new evidence to warrant charges against US presidential candidate Hillary Clinton, markets experienced a relief rally.
On Monday (07/11) US stocks finally broke the nine-day losing streak, a streak that was fed by uncertainty about the outcome of the US election. After the FBI's announcement the Dow Jones industrial average rebounded 2.1 percent, the Standard & Poor's 500 index surged 2.2 percent, while the Nasdaq composite added 2.4 percent.
Supported by rebounding stocks in the USA overnight, Indonesia's benchmark Jakarta Composite Index (IHSG) had climbed 1.54 percent to 5,469.38 points by 15:20 pm local Jakarta time on Tuesday (08/11). Meanwhile, the Indonesian rupiah had appreciated 0.03 percent to IDR 13,082 per US dollar by the same time (Bloomberg Dollar Index).
Markets Support Who, and Why?
The information above clearly suggests that markets are hoping (and expecting) that Hillary Clinton will become the next US president. Why do markets prefer Clinton in the White House?
- Hillary Clinton; investors prefer Clinton as her agenda is more-or-less known and clear. She is regarded the status quo-candidate who won't cause a sudden different approach or direction of US politics and economic policies. Although she has been plagued by the email scandal (Clinton used a private email server for official communications, rather than official State Department email accounts maintained on federal servers), the well-known scandals of her husband Bill, and has a rather low likeability level (in terms of people's perceptions about her character), she remains the market favorite. Contrary to her opponent, she also has the characteristics of the traditional politician and a less controversial character.
- Donald Trump; he is the non-traditional, more controversial candidate who is less focused on political correctness in terms of language and policies (and which is actually why part of the US population supports him). Trump calls for a more protectionist approach regarding international trade and uses tougher language against immigrants. Investors are not keen on Trump as it is not really known what a Trump victory would imply for the direction of US economic policy, free trade and geopolitics. It is not even known how well Trump will get along with his fellow republicans. It is suspected that Trump is not a loyal tax payer to the US government, while several weeks ago a tape surfaced in which he can be heard, repeatedly, making vulgar comments about women.
Possible Scenarios and Impact on Indonesian Assets
- Given that there occurred a relief rally on Monday (07/11) that was extended on Tuesday (08/11) in Asia, a Clinton victory will not necessarily mean that Indonesian (and Asian) stocks will surge. In case of a Clinton victory, we could in fact see many investors engaging in profit-taking to take advantage of the two-day rally that occurred during the first two days of the week. Several analysts advise investors to take profit after a Clinton victory.
- In case of a Trump victory we expect to see a sharp selloff, perhaps even the worst since the financial crisis in the late 2000s with the Mexican peso likely to become a major victim. Simon Johnson, former chief economist at the International Monetary Fund (IMF), warned that a Trump victory could trigger a global recession and his (possible) protectionist policies could cause a new "Great Depression". Trump could decide to impose big tariffs on imports from China, the world's second-largest economy. This could curb China's GDP growth by a couple percentage points over time. Meanwhile, a major effect on financial markets could even affect the Federal Reserve's monetary policy.
- In case, for some reason, the result is too close to call the high degree of uncertainty will cause a selloff.
Updates (new stories are added at the bottom):
- While most Asian markets extended gains on Tuesday (08/11), European stocks only edged higher cautiously ahead of the US election. Gold also rises, implying a portion of investors are seeking a safe haven asset
- Most polling stations on the US east coast will open starting from 7:00 am EST. States that are regarded key battleground states - and are among the first to close - are Pennsylvania, North Carolina and Florida. Hillary Clinton held a narrow lead in most pre-election polls. Goldman Sachs says Clinton is "more likely to win"
- At 15:35 pm (local Jakarta time) Hillary Clinton arrived at Westchester County Airport (New York)
- Trump says his victory would be "Brexit plus plus plus", reminding people about the shocking outcome of the Brexit vote. However, there remains robust US dollar demand on expectation of a Clinton victory
- Indonesia's Jakarta Composite Index ended +1.57 percent on Tuesday on Clinton bets
- Pre-election polls: Clinton leading but not by much
- Trump leads in early New Hampshire voting
- US stock index futures are marginally lower on Tuesday as Americans are on their way to the ballot boxes
- Hillary Clinton and husband Bill voted in Chappaqua (New York) early on Tuesday morning
- Trump also voted in New York (Manhattan)
- Investors become somewhat more enthusiastic as the hours go by. The Dow Jones, S&P 500 and Nasdaq ended up around +0.50 percent on Tuesday
- Most Asian shares higher on Wednesday morning, while the gold price is slightly lower. This shows some risk-on sentiment
- Due to the high degree of uncertainty about the US election Asian shares started to decline heavily later in the morning. The race between Clinton and Trump is tighter than previously thought
- Donald Trump elected US president
- Asian assets under severe pressure after Trump won the presidential race
Latest update: 14:50 pm local Jakarta time (Wed 9 November 2016)
Poll Indonesia Investments:
Who will become the 45th President of the USA?
Voting possible: -
- Hillary Clinton (50.7%)
- Donald Trump (38.4%)
- Too close to call (5.5%)
- I don't know (5.5%)
Total amount of votes: 73