The impact of the US presidential election on the market (Part 1)

The impact of the US presidential election on the market (Part 1)

There is now only a month before the US presidential election. Until the mid point of the election campaign, Democratic candidate Hillary Clinton seemed to have the upper hand, but with doubts about her health and the issue of her personal e-mail, etc, there have been several "losses" for the Hillary camp, making this a closer race than expected.

Polls such as those by CNN and Reuters show Trump one or two points above Hilary, and it looks like the following month will be tense. For those related to the market, regardless of who wins they want them to set a clear path as soon as possible.

In any case, the US will have a new president a month from now. So how will the victory of either Trump or Hilary affect the Japanese stock market, exchange rate, and real estate market? First, the possible outcomes of a victory for Hillary, possibly America's first ever female president who comes armed with abundant financial power. It is generally said that Hillary will continue Obama's policies. Also, Hilary is unique in that she has pledged (although perhaps vaguely) financial resources in many areas such as education, economy, and employment. After the transfer of power, a smooth political management can be expected. This may lead to stability in the market. It could also be said that other countries feel secure in dealing with Hilary.

However, considering the support received by Bernie Sanders in the primaries, it is predicted that there will be a move to raise taxes for the wealth (perhaps only minimally), and strengthen restrictions on financial institutions. With respect to financial regulation, Hilary's wide ranging pledges such as to strengthen taxation on High Frequency Trading (HFT), which has expanded massively in recent years, and speculative trading by major financial institutions, and to increase capital gains tax, may shake things up in the current financial system. If regulations are actually enacted, there is the possibility of a reduction in speculative investment (a credit crunch) due to global low interest policies. If this happens, there is a chance funds may be withdrawn from risk markets such as stocks and real estate.

Over half of day trading in the Japanese stock market consists of foreign investors. Simply because it is a market so strongly influenced by foreign investors, foreign investors strengthening their Risk Off stance would have more than a minor effect.

Further, in the past Hillary has said Japanese monetary policy "unfairly induces a weaker yen". The same can be said of China, and after being elected she would likely implement policies to encourage a stronger yen to the dollar. This can clearly be seen as a negative for the Japanese stock market (particularly the Nikkei Stock Average) which is heavily dependant on external demand. For these reasons, if Hillary becomes president, many point to a gradual appreciation of the yen and a depreciation of Japanese stock prices.

On the other hand, if there is a drop in investment funds or an appreciation in the yen, then the real estate market won't be able to avoid the negative impact either. However, with regards to Japanese real estate, the rate of investment from abroad is low compared to Europe, the USA, and developing companies. Further, real estate is different from stocks in that liquidity is low, excluding parts such as the REIT, meaning it will likely not immediately lead to something like a market collapse.

However, as mentioned above, a victory for Hillary would likely be generally met with a sense of security in the market. in that regard, the dominant view is that stock and real estate markets are unlikely to take a dive after her possible inauguration.

In addition, currently both the upper and lower house of the American senate are occupied by a Republican majority. It is currently believed that, at least in the upper house, the Democrats won't be able to take back a majority of seats in the Senate election taking place alongside the presidential election. In terms of the lower house, the Republican party currently has 247 seats to the Democratic party's 188, with a high possibility of the Democratic party closing this gap in the November election. If this happens, the US senate would once again been in a "twisted" state. In any case, a war over policy coordination awaits Hillary after the State of the Union speech in January 2017. Because of this, it may take considerable time for Hillary's campaign pledges to be realised. Taking this into account, it seems a temporary postponement allowing investors to assess the content and timing of any bills is likely. This point seems to be a major difference between Hillary and Trump.