What do the 2020 US election results mean?

04 Nov 2020

Investec experts consider how the unfolding results of the US election might impact individuals, business and geopolitics

Biden appears victorious but investors are watching the Senate

Victoria Clarke
Former Vice President Joe Biden has been declared the victor of the US presidential race after he was judged to have gained the 270 Electoral College votes to win. However, his rival, President Donald Trump, has not conceded and is pursuing several legal avenues, recounts and planning rallies.
For now, the unclear outcome of the Senate race is complicating investor efforts to gauge the policy implications of the election. That is because two Georgia Senate races are heading for a runoff on 5 January. With Mr Biden winning the presidency, victories in both Georgia races would likely hand Democrats control of an evenly split Senate, giving Democratic Vice President Kamala Harris the casting vote in a situation of a tie.That would give the "Blue Wave" scenario that investors had been eyeing as paving the way to a more significant fiscal stimulus next year.
In the absence of this, a more bipartisan approach could well curtail not only what stimulus we can expect, but the broader policy agenda. For now, risk sentiment remains positive, while the US dollar is subdued.

IPO market remains open but momentum is stalled

Andrew Pinder
Head of UK investment banking
Typically a good IPO market develops when we have a strongly performing stock market which normally means we have both political stability and economic growth. Irrespective of the economic picture remaining “foggy” due to the uncertainties surrounding COVID (and not forgetting unresolved Brexit issues), the ramifications of a potentially disputed US election result will take some time to understand.
As a result, we expect the IPO market to continue to be open for strong selected companies, given the weight of capital and the desire to have fresh investment cases, but the return to wide spread IPO market momentum feels some months away.

Ambitious promises could drive steady progress on climate action

Tanya Dos Santos
Global head of sustainability
Climate change was a key topic in the US election debate for the first time (which is encouraging in itself), with Biden campaigning for $2tn of investment in sustainability and President Donald Trump inferring that it is ‘a hoax’.
The USA officially left the Paris Climate Agreement on 4 November, but with Biden as the presumed President-elect, the USA is expected to re-join the international alliance immediately – a move that could come into effect within 30 days. It will see the USA agree to act to limit the global rise in temperature to below 2°C and avoid life-threatening environmental consequences. The country will also honour a financial pledge of $3bn to a shared Green Climate Fund. 
The move should signal a new era of international co-operation on climate change and motivate other countries. As part of the Paris accord, Biden will re-commit to achieving net-zero greenhouse gas emissions by 2050, in line with the EU’s self-imposed target. 
Biden’s manifesto recognised a connection between climate action, jobs and economic growth, as well as reduced inequality. “The climate emergency also represents an enormous opportunity,” he said.
It is encouraging that he acknowledges the 17 Sustainable Development Goals identified by the UN as crucial for a better world for all. His proposals include green investments in areas such as clean energy; decent jobs; and innovation and infrastructure. He aims to make the electricity industry carbon-free by 2035, fund advances and R&D roles in the transportation and automotive industries and build eco-friendly homes.
When it comes to the most contentious issue of all, fossil fuels, Biden is pro the transition to a low-carbon economy but he is vague on his stance on fracking which may invite criticism from many environmentalists.
In practice, meaningful change won’t happen over night. Reinstating many of the more than 100 environmental regulations that Trump has rolled back will take time and Republican opposition in Congress will slow new regulatory intervention. 
However, Biden’s appointment will impact global sustainability efforts because of its symbolism. In the run up to the election, two thirds of Americans were said to support ‘aggressive action’ on climate change in a year that has seen wild fires and rising water levels affect local communities. Trump and Biden were polarised on this issue. Now it is clear, the health of the economy and the future of the planet will require the same cultural shift that propelled Biden to power, to take swift action delivering the investment that was promised to drive society forward.  

This is a bump in the road compared to Brexit

Lewis Thorn
In the UK, the majority of corporate clients are net importers, selling sterling and buying either euros or US dollars, and their primary concern over the last couple of months has been Brexit. The US election has been a bump in the road that they’ve had to navigate ahead of the real risk coming down the road.

One interesting development in that regard is that we’ve seen option volatility come off in the near term. So although there’s some potential for volatility over the next week or so, it does make hedging slightly cheaper for UK corporates despite the Brexit uncertainty. Volatility has fallen off by 2.5% to 3% overnight and that may present UK corporates who hedge using anything other than normal forwards the opportunity to get some more cover in ahead of the Brexit trade deal decision later this month.

Consumer stocks could be affected by looming taxes

Alicia Forry
Consumer and retail research
A Biden win with a divided Congress is slightly negative for consumer stocks. On the one hand, it will be more difficult for Biden to push through his corporate tax rate increases, but we do expect upward pressure on corporate tax rates in coming years which will hurt shareholders of global consumer companies with exposure to the US market (global FMCG typically has at least 20-25% profit exposure to the US). Conversely, fiscal stimulus may be slower to come through, with the potential for disagreements within Congress to slow things down. Stimulus could be considered helpful for the consumer sector, so any delay to this is negative.
Furthermore, Biden is likely to roll back some of Trump’s tariffs, which would help Scotch whisky makers, French cheesemakers and many other consumer companies whose products have been caught in the cross-fire of the US-EU tariff wars.
Overall, while stimulus and tax rates do impact the consumer sector, the far bigger influence on the sector will be the economic effects of the COVID crisis. This may lead to higher unemployment and lower disposable income, and it is not clear whether the stimulus will be enough to offset the pressures on the US consumer.

Low prices and regional sentiment could slow oil industry reform

Nathan Piper
Oil and gas research
Although Joe Biden won the White House, a Republican majority in the Senate (depending on results in Georgia) is likely to blunt wholesale reforms that could have included restrictions on fracking and drilling on federal lands (that includes the Permian Basin). That said, we anticipate the US will rejoin Paris climate accord with the rest of the international community.
In the short term, as opposed to a Biden presidency, ongoing weak oil prices are likely to have the biggest impact on US oil and gas production and drilling activity, with oil prices still below $40 dollars per barrel. To progress the $2tn climate plan Biden mentioned before the elections, there may be a shift in focus to creating green energy jobs and to build support across the aisle.
Overall, local sentiment suggests there is likely to be little regional pressure on US oil majors to transition their business models away from oil and gas.

Eased global trade tensions could bring positive news for UK-listed companies

Ben Bourne
Industrials research
With Joe Biden as President, we envisage him easing trade tensions with China. While confidence between the nations could take time, the consensual approach would certainly be positive and will benefit UK-listed industrials.
We think the Democratic discount on defence valuations is already priced in and had the Democrats secured a sweep of the executive and legislative branches, they would have been in strong position to enable higher funding for social security programmes at the expense of defence spending. However, with a Republican Senate in place, the risk of large defence budget cuts is reduced. Spending priorities are likely be similar under Biden as they would have been under Trump as global threats continue to be high and spending on defence is a way to protect US jobs and stimulate the economy.