Written by Norman Isaac Mwambazi

Biden win boosts global stock markets

Last week on Saturday, November 7, 2020, Democrat Joe Biden was called as the next US President after finding out …

Last week on Saturday, November 7, 2020, Democrat Joe Biden was called as the next US President after finding out that there was no longer a mathematical way the incumbent Donald Trump could win the election.

The news of Biden’s win sent exciting shockwaves to investors and traders alike around the world and that excitement was felt in the stock markets of different countries.

In Japan, the Nikkei Index of the Tokyo Stock Market rose 2.12% to 24,839 in the morning trading session to reach its highest point in 29 years following Joe Biden’s victory.

In the UK, the FTSE 100 Index, Britain’s stock market jumped 4.4%, the equivalent of 260 points to 6170. This was the market’s highest level in almost a month.

FTSE 100 Index

In Europe, all the main markets like Germany’s Dax rallied 1.9%, and France’s Cac rallied 1.8% making the Europe-wide Stoxx 600 index rise by 1.4% to its highest level since October 14, 2020.

The MSCI world equity index also rose 0.5% to record high in early European trading. This index tracks shares in 49 countries worldwide.

China, Hong Kong, and Australia experienced similar trends, with the Shanghai Composite going up by almost 1.9%, Hong Kong shares rising 1.2% and the ASX200 in Sydney rising by 1.75% respectively.

In the US, although investors are worried Trump’s refusal to concede defeat and plans of taking the legal fight to the Supreme Court could prove a stock market quicksand, futures trading suggests the Dow Jones is expected to rise 1.26% when Wall Street opens. The benchmark S&P 500 is also expected to rise 1.5%, and the Nasdaq is already rallying more than 2%.

Effect of a split Congress

Although Biden won the presidency, his party the Democratic Party has not yet won the Senate and investors are betting that there is a higher chance Biden will not have the much-needed influence over it.

Because of that, he will not be able to push through any meaningful fiscal stimulus and failure to do so will force the Federal Reserve Bank to continue pumping cheap money into the economy, and keep borrowing costs at their historically low levels.

Dave Wang, a portfolio manager at Nuveen Capital in Singapore says that markets have reacted strongly to the likely split Congress, which means investors have more confidence that interest rates will be lower for little bit longer.  

Damien Klassen of Nucleus Wealth in Melbourne, Australia believes that the global economy outlook is troubling because it relied so much on the second government stimulus, which is yet to be passed by Congress. This makes the stock market’s reaction to Joe Biden’s election victory a “little bit strange.”

Apart from the politics, Klassen further believes that COVID-19 has not helped things as the number of infections and deaths keep rising in the US and Europe, making the fundamentals to still look terrible.

On the other hand, the news of the potential discovery of a potential COVID-19 vaccine by American firm Pfizer in collaboration with Germany’s BioNtech, which they reported to be 90% effective, has boosted global stock markets.

The two companies had their vaccine tested on over 43,500 people in six countries namely, the US, South Africa, Germany, Argentina, Brazil, and Turkey, and it showed no side effects. This news had shares surge as people got more optimistic to kick the pandemic away. It is important to note that confirmed infections in the US alone are nearing 10 million.  

The stock markets around the world are headed for a real test in the coming days and weeks due to, as mentioned earlier, the refusal of Donald Trump to concede defeat. It does not help matters that he has numerous Republican Party members willing to back him up in his “pursuit for justice” from an election he claims was filled with fraud.

As we said that the political climate of the US affects the stock market in one way or another, we wonder how long the markets will ignore that! Nevertheless, the markets still look good.