GUEST POST : Zico For Stocks Column – The US elections do matter for stock investors

The US Presidential elections is now front and centre of everything. Barring some electoral deadlock where the results are inconclusive, there could be more days of uncertainty.

Why does it matter? Well, a Romney presidency would spell the end of Fed chairman Bernanke’s term in office. In any case the chairman has already indicated that he won’t be seeking a third term when it expires in early 2014. He could choose to stand down in 2013. The Romney folks have not been comfortable with the Fed’s approach with quantitative easing and the current loose monetary policy.

That in a nutshell is reason enough to be concerned with the trend of US rates. The yield compression theme has been a major winner in stock markets. Hence the concern for the yield plays in the local REIT market. So the results in the elections do matter to stock investors in Singapore.

The Romney plan to take on China is also a point of concern. While it’s always been fashionable for candidates to point to jobs loss to China and the RMB being manipulated, the risks of such an approach will translate to more unknowns for the financial markets. China will also be having a big leadership meeting this week and they won’t want to look weak in the eyes of their constituency.

The campaign for the US presidency had been one roller-coaster this past month. There were the “near” scandals like the attacks on Benghazi and the October surprise in the form of the super storm, Sandy. In both, the incumbent came through better than expected. And to top it all, there is the daily barrage of polls on the state of the elections. It’s like precision in the midst that which is so fickle and imprecise. It is also really shocking how “powerful” the media or rather conventional media has been in shaping the information that we get. And we are consumers of the information.

But to me the defining moment in this cycle was the first debate on 3 October. It just showed how effective negative advertising can be. It’s like throwing mud on a clean wall. If you keep throwing it will stick. But credit to the challenger, he came through looking credible.

Bottom line – the incumbent has done a very good job in tearing the credibility of the challenger without really presenting an agenda of what he will be doing if he is given another four years. The enthusiasm levels of 2008 are unlikely to be surpassed if at all, met. In other words the turnout for the Democrats is likely to be lower than the record levels in 2008. The deciding factor will depend on the turnout of the Republicans at the voting booth.

The folks in the financial markets seem to favour another four years for the incumbent. So a win for the challenger will be a surprise. And markets don’t like surprises, so expect the stock markets to exhibit the customary discomfort with an unexpected result.

On the other hand, a return by the incumbent will signal bigger uncertainties at the turn of the year when they will have to grapple with the fiscal cliff. A second term Obama will find more opposition in a Republican House.

And who knows – if there is sting in the Benghazi attack, you could get a President Biden through a Benghazi-gate.

As for my betting money I am going for a change – Romney & Ryan. In terms of stock strategy, it is probably to be prudent and keep the powder dry.