?? Should you care about the US elections?

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?? Countdown

Americans will be heading to the polls on Nov 5, which only means one thing: You won’t be able to escape chatter about the US presidential election.

The polls are set to be a close fight, with surveys showing close to equal odds for presidential hopefuls Kamala Harris and Donald Trump.?

Why should we care about an election happening half a world away? And for savvy investors – what could the electoral battle and its results mean for your portfolio?

In this week’s issue:

• What terms like “healthy correction” and “taking profit” really mean
• Maximising your credit card miles game
• Sectors to watch if either Trump or Harris wins

?? Markets are stirring

The short answer for why we should care is that the US is the most powerful country in the world – economically and militarily – with an outsized influence on the global stage.

My bigger concern, though, is that post-election, my daily feed of AI-generated TikToks of Trump and Harris singing Mandopop duets may sadly come to an end ??.

In all seriousness, an election win for either side – Democrats or Republicans – will greatly affect the rest of the world.

In 2018, a trade war with China sparked by former US president Donald Trump’s tariffs rocked the stock markets. The tit-for-tat between the two nations hurt economies worldwide, including Singapore, where exports were affected and factory orders slowed.

That’s just one example of how US policy decisions affect the rest of the world.

(This may once again be a reality if Trump takes the White House, as he is proposing across-the-board tariffs not only on US’ rivals such as China, but even allies such as the European Union. Former Singapore diplomat Bilahari Kausikan makes a good case, however, for why Trump tariffs won’t be the end of the world for us.)

Markets are already stirring ahead of the Nov 5 election.

Prices of gold, often considered a safe haven during periods of political turmoil, hit record highs.

In Asia, stock markets are booming in what could be their busiest period in more than two years, with at least 20 companies rushing to list before the US election.

Investors are making so-called “Trump trades” in corners of financial markets that could be affected if Trump wins. Meanwhile, stocks of small companies and Bitcoin have climbed in recent weeks while the Mexican peso and Treasuries have slipped.

And with the US a central player in two hot wars in Ukraine and Gaza, eyes will be on the next president and their policies because of how they could greatly affect geopolitics

?? Sectors to watch if Harris wins

?? Clean energy: US electric vehicle (EV) makers, EV-charging network operators and battery makers could benefit from a Harris win, given the Democrats’ positive stance on clean energy. Solar company stocks are expected to do better as well.

?? Home builders: Harris has proposed a down payment support scheme for first-time homebuyers and suggested a tax incentive for builders who work on starter homes.

?Financial: The Harris administration is expected to stay tight on regulations for this sector.

? Healthcare: Harris has proposed a US$2,000 (S$2,645) annual cap on out-of-pocket costs for prescription drugs.

?? Sectors to watch if Trump wins

?? Oil and gas: Traditional energy companies are likely to benefit as Trump has vowed to roll back restrictions on domestic oil production.

?? Defence: Stocks in this sector are expected to do better under a Republican president, given that defence spending will be a clear priority for the party.

?? Crypto: Despite once calling cryptocurrency a “scam”, Trump has of late been supportive of digital assets, even pledging to make the US the “crypto capital” of the world.

?? Financial: Trump is a big proponent of deregulation – something that banks will certainly cheer for given the increased scrutiny during US President Joe Biden’s administration.

? Clean energy: Clean energy and EV companies are expected to face challenges under Trump, given that he has said he will entirely reverse President Biden’s EV policies.

? Companies with high revenue exposure to China: Trump has suggested imposing across-the-board tariffs, including steep levies on imports from China. Chipmakers, materials companies and industrial firms could be at risk.

?? Betting on a coin toss

That said, it’s practically a coin toss at this stage to try to predict whether Trump or Harris will win. Polls are signalling a close race, so much so that Wall Street pros are avoiding betting on either side.

There’s also no telling if either of the candidates’ policy plans will come to fruition when they become president. Even if they do, policies that benefit a sector or company are just one strand in the complicated web of factors that ultimately determine a stock’s price.

Unless you’re already convinced of a sector or company’s fundamentals and growth prospects, it’s risky to pick stocks based solely on such uncertain outcomes.

Whether Trump or Harris wins, the good news is that election years have generally been good for the US stock market.

The S&P 500 index, the widely used benchmark for the US stock market, has risen in almost every election year since 1960.

The two exceptions were 2000 and 2008, the years of the dot-com bust and the worst financial crisis since the Great Depression, respectively. In the three most recent election years, the S&P 500 index rose at least 10 per cent.

The bottom line is to stay invested. That advice is also true for investors in the Singapore market – given Singapore’s high correlation with US stocks.

If you’re invested for the long term, making bets on short-term events is unlikely to make a difference in the grand scheme of things, writes Endowus’ chief investment officer Samuel Rhee and chief investment advisory officer Hugh Chung.

Instead, they recommend that investors stick to time-tested investing principles: global diversification, long-term strategic asset allocation and low investing costs.

“No one individual or party will make a difference to future market returns,” they write.

TL;DR

• US policies have a big impact on the rest of the globalised world
• Already, markets are stirring as the country gears up for the Nov 5 election
• If Harris wins, clean energy sectors such as electric vehicle makers and solar energy companies are expected to benefit
• If Trump wins, traditional energy and defence stocks, as well as crypto, are expected to do well

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