PH investors brace for impact of US elections

As America votes on the presi­dency this week—choosing between incumbent Donald Trump and challenger Joe Biden—investors are bracing for the spillover effect on local financial markets this week.

Nicholas Mapa, economist at ING Philippines, said knee-jerk reaction to a possible Biden presidency after the Nov. 3 elections would be negative for local markets, as US equity markets would likely retreat in anticipation of a corporate tax hike.

Apart from pledging an aggressive fiscal response to the coronavirus pandemic through his own version of “Build-Back-Better (BBB),” a possible rollback of corporate tax cuts and higher taxes for wealthy families are seen under a Biden presidency.

“When the dust settles and Biden finally draws up plans for his own BBB, market sentiment should perk up with global trade expected to bounce on Biden era trade clarity. This may spark some life back into Philippine exports given its place in the global supply chain with equity markets also likely to track a recovery in global risk assets after the initial sell-off,” Mapa said.

ING expects Biden’s foreign policy to focus on repairing strained alliances and a return to multilateral agreements like the Paris accord. While Biden may retain a tough stance on China and trade, ING expects him to be “more predictable” and utilize benefits to US companies to onshore, rather than tariffs wars. He is also expec­ted to retain US Federal Reserve chair Powell or appoint a centrist Gov. Lael Brainard.

The US elections, concerns on global monetary stimulus and the rising COVID-19 cases abroad will all be on the radar of stock market investors this week.

Last week, the main-share Philippine Stock Exchange index (PSEi) lost a total of 160.06 points or 2.5 percent to close on Friday at 6,324.

“The PSEi recently broke up from a tight two-week squeeze and has breached both the 50- and 200-day period exponential moving averages. Despite the weak corporate earnings reports, the recent breakout shows the market’s bias to a short to medium term uptrend. This happened despite companies operating below prepandemic levels,” said Jose Vistan, head of research at AB Capital Securities.

The main catalyst for the recent run-up has been the improving COVID-19 picture locally, with new cases now under control and with the local economy opening up again, Vistan said.

“Hopes of going back to the old normal locally and the current low yield environment will provide a solid support for the PSEi. The Fibonacci support from the latest pivot point was around 6,200, which managed to hold for now. Beyond that, we also see an immediate support levels at a confluence point of around 6,130,” Vistan said.

On the other hand, Union Bank economist Ruben Carlo Asuncion said last week’s global risk-off sentiment may carry over to this week.

“With generally soft third quarter corporate earnings, sustained correction early in the week is likely,” Asuncion said, adding that third quarter earnings may still prove useful in guiding the market on the companies may lead or lag next year’s recovery.

Union Bank sees the PSEi finding support at 6,170.

“Alongside US election uncertainty amid absence of a US fiscal stimulus, there’s rising market perception of elevated downside risk on fourth quarter global output,” he said.