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[SPLIT] A Harris victory with split Congress sees little impact on GDP; equities face short-term weakness but long-run positive

  • Kamala Harris' victory in the US presidential election, along with a divided Congress, means little change to the status quo of the current macroeconomic environment, with minimal impact on US economic growth and fiscal deficits.

  • Harris' push for new fiscal and benefit spending initiatives will face barriers in a split government, leading to a lack of fresh impetus for GDP growth, even though a series of domestic-oriented investment programmes from the Biden administration should remain. Restrictive fiscal policies will help limit the rising fiscal deficit, despite a bipartisan agreement on the need to increase military spending to demonstrate strength.

  • [Replace previous two bullet points with this one if SWEEP] A Democratic clean sweep in the US presidential election surprises the market. We believe it will give a boost to GDP while putting pressure on the fiscal deficit due to her implementation of tax cut policies and fiscal spending initiatives. During her campaign, Harris proposes social programmes and tax policies that include forgiving $7 billion medical debt for 3 million Amercians, increasing top corporate tax rates to 28% from 21%, while raising rates on wealthy individuals.

  • Harris will likely maintain foreign and trade approaches, including China policy, set down by the Biden administration, but we expect her to be more hawkish than Biden to show strength when at crossroads. Similar to Republican presidential candidate Donald Trump, she also adopts a protectionist tone, but with greater predictability and tariffs more targeted.

  • In the short term, we believe equities to trend lower due to the potential for increased regulations and higher corporate taxes. However, in the long run, performance should remain robust, supported by steady investor sentiment due to greater predictability and market stability.

  • US Treasuries will dictate the broader performance of Asian investment-grade dollar bonds, which are more affected by macro risk sentiment, particularly equities. We expect risk sentiment to be negative. With US Treasury yields moving lower, Asian investment-grade bonds will outperform their high-yield counterparts. Non-USD currencies, including the Renminbi, will perform better.



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