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Investors gained by being bullish during US elections: Will they win again?

This time, the nervousness among investors is higher because Republican candidate Donald Trump has railed against globalisation and free trade in recent months.

, ET Bureau|
Updated: Sep 26, 2016, 08.28 AM IST
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Will the US election outcome be a hurdle for emerging market equities, including those of India? That's what investors are asking as the US Presidential contest gathers steam ahead of the vote in November. At this juncture, few would be willing to bet on prospects after the results, but if past market reaction is anything to go by, investors would do better by staying bullish, reports Sanam Mirchandani.

In the three-month period after the US elections since 1996, Asian markets have surged on most occasions. Specific to India, the Sensex has risen in the three-month period on four out of five occasions irrespective of which party came to power. The only time India and most other Asian markets were down was in 2008 -the peak of the global credit crisis.

This time, the nervousness among investors is higher because Republican candidate Donald Trump has railed against globalisation and free trade in recent months.

“If Trump wins... there may be a negative knee-jerk reaction like Brexit,“ said John Praveen, chief investment strategist, Pramerica International Investments. “But like Brexit, even if there is a negative reaction, it will be short lived,“ said Praveen.

The performance of Asian emerging markets in the month after US elections since 1996 has been less predictable. Indian markets have fallen on three occasions out of five in the month after the polls.



Strategists and fund managers believe the bigger worry could be for China rather than India.

“Neither candidate has spoken highly of free trade agreements.It appears as though, initially ,a Republican victory for President could weigh on China, but especially Mexico,“ said Brian Jacobsen, chief portfolio strategist, Wells Fargo Funds Management. The Indian gover nment's Make in India plan could en counter resist ance if either of the candidates e wins and moves forward with trade restric tions. But nei ther Democratic nominee Hillary Clinton nor Trump have specifically mentioned India because both of them appreciate that the country is a democracy , unlike China, said Jacobsen.

Investors will, however, hope that Chinese markets are not impacted in a big way. If China responds by allowing the yuan to depreciate rapidly, it could impact other emerging market currencies including the rupee.A weaker rupee could spark foreign portfolio withdrawals from India. Earlier this year, a declining yuan roiled emerging markets. For India, rich stock valuations could compound problems. Indian markets have risen 25% since February and are just 2-3% away from their all-time closing highs. The Nifty is trading at 18 times oneyear forward earnings, the highest among emerging markets. The immediate concern for India is valuation, said Jacobsen. “India's market has been on a tear and it will take a breather," he added.

Some money managers said investors may need to be more worried about the US Federal Reserve meeting in December soon after the elections.

“What is important is that in December, whether (Janet) Yellen hikes rates and comes out with a hawkish message which dries up the global liquidity--that is a bigger concern," said IIFL Wealth cofounder Amit Shah.“The other concern is borrowing costs have generally increased globally in the last one year with Libor moving up by 30 bps (1 month) to 70 bps (1 year) and bond yields have declined in similar time frame."
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