Taiwan: Market relief seen as US-China status quo upheld

When Taiwanese voters swept the ruling Democratic Progressive Party's presidential candidate Lai Ching-te into power in January, global markets reacted with relief.

Mr Lai made clear he wants to maintain Taiwan’s independence but also stressed he has no plans to upset the status quo with the mainland. By rejecting Chinese pressure to spurn his candidacy, voters indicated their preference for maintaining the US-China status quo, where tensions persist but are restrained from escalating to the point of near-term conflict.

This relatively neutral election result has reduced the likelihood of any near-term threat, which could pose significant disruptions to the global semiconductor industry while erasing an estimated US$1 trillion from annual global economic output, US Director of National Intelligence Avril Haines told a Capitol Hill hearing in May 2023.

With the Taiwanese election done and dusted, and US-China status quo maintained, Asian investors can move on to other election news.

Indonesia: Market overshadowed by political uncertainty

In Indonesia, former defence chief Prabowo Subianto, who ran with outgoing president Joko Widodo’s eldest son Gibran Rakabuming Raka, won a landslide majority on February 14, cheering markets and boosting hopes of political stability.

Indonesian stocks, which had drifted lower ahead of the hotly-contested national elections, jumped after the Prabowo-Gibran team achieved a simple majority in the polls, eliminating the need for a second round of voting.

As Indonesia’s eighth president, Mr Prabowo is expected to continue his predecessor’s policies such as supporting downstreaming policies for resources such as nickel, copper, tin and agro products. This should benefit some metal miners, according to William Le, President-Director of Maybank Sekuritas.

He also expects winners in the stock market to be broad-based, led by banks and top property developers. All eyes will be on whether the new administration will be able to maintain fiscal discipline while rolling out initiatives such as the free lunch programme, which may cost around 2 per cent of Indonesia’s current GDP, according to Fitch Ratings.

With hopes on greater political stability, analysts expect capital market activity, like big-ticket IPOs, to rebound after political stability.

Investors will also be watching closely if the new president will implement policies to promote intra-regional trade, and if he will continue his predecessor’s push to shape a bigger role for Indonesia in navigating regional power balances with the US and China. Under President Widodo, ASEAN’s biggest economy had become an increasingly vocal player in geopolitics, and in 2022, Indonesia staged the first meeting between US president Joe Biden and his Chinese counterpart Xi Jinping.

India: Strong long-term investment potential if incumbent government prevails

Prime Minister Narendra Modi could win the general elections in May, going by the outcome of the state elections held earlier this year. 

If re-elected, PM Modi is likely to press on with narrowing the fiscal deficit, which India targets to reduce to 5.3 per cent by the end of the next fiscal year, from 5.9 per cent in the current year.

He could also continue spending heavily on infrastructure, while boosting incentives to attract foreign and domestic manufacturers to invest in higher-growth industries that can create more jobs.

While political and policy uncertainties in the short-term may soften India’s stock outlook, India’s relatively strong GDP growth over the past few years could continue drawing foreign long-term investors who are betting on Mr Modi winning a third term in office.

Maybank Asset Management analysts are keeping India equity exposure at “neutral”, based “on its favourable geopolitical relations with the developed world and seen by some investors as an investment alternative to China”.

US: Nail-biting race will roil markets

While the US presidential elections will only take place on 5 November, the twists and turns of the race are already priming markets for volatility.

Polls currently suggest that Donald Trump, who holds a commanding lead over all other Republican candidates, could face off with President Joe Biden again. In a New York Times poll, more voters trusted Trump on the economy, well ahead of Biden, despite the resilience of the US economy. Several polls show Trump ahead of President Biden in key swing states.

If Mr Trump wins, he could impose a global 10 percent blanket tariff to protect US manufacturing while escalating US-China trade tensions. This could negatively impact Asia’s global exports, according to Maybank’s Chua.

As for a Biden win, his second term in office may usher in higher corporate taxes, which is a possible negative for global stocks.

For Asian investors who are closely watching how the next president handles US-China relations, Mr Biden’s stance of maintaining the status quo, which balances competition and multilateralism, may be more reassuring than Mr Trump’s view of China as a major US adversary, a view expressed in an analysis by The Diplomat.

“Historical patterns reveal that the US stock markets tend to exhibit volatility and weaker returns in the lead-up to elections,” observed Maybank Asset Management analysts in their 2024 outlook and strategy report.

Notably, the high-stakes and polarising nature of the US elections could significantly impact growth and inflation dynamics, they pointed out.

But investors can take heart that this unpredictability historically has tended to dissipate once the new administration is installed. “Once elections conclude, returns typically show strength and resilience,” Maybank analysts noted.

Keep calm and carry on

In this key transition year, emotions and uncertainty will no doubt run high, as investors brace for unpredictable outcomes from multiple elections. But unless there is a major surprise that could upset the global economy and markets, most investors may not need a specific election-related strategy to adjust their portfolios.

Maybank Securities Asset Management analysts advise that it is important to invest in a well-diversified portfolio and to avoid making knee-jerk investment decisions when reacting to the latest election news.