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Georgia Goes Blue: Wealth Managers React

Jackie Bennion, Deputy Editor, January 7, 2021

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Wealth managers, economists and fund managers talk about the implications of the Georgia election wins in the Senate for the Democrats. The victories open up opportunities for US President-elect Joe Biden.

The dismal scenes on Capitol Hill yesterday almost overshadowed the Georgia run-off results that have put the White House, Senate and House in Democratic hands for the first time since Barack Obama entered office in 2009. The results initially rattled markets as much as the mob rule engulfing the capital monopolized TV coverage.

Goldman Sachs chief executive David Solomon took to LinkedIn to express the need to restore goodwill in US public life. “It’s time for all Americans to come together and move forward with a peaceful transition of power. We have to begin reinvesting in our democracy and rebuilding the institutions that have made America an exceptional nation,” he said

Consensus is that Senate control will pave the way for higher taxes, at least in the medium term, to pay for the COVID-related damage. Economists also predict a more expansive stimulus because of the shift to the Democrats. Tougher regulations are also anticipated, such as for Big Tech. The tech-heavy Nasdaq was hit yesterday. By contrast, wealth managers are upbeat about green-linked sectors, given that they think a Biden administration will squeeze carbon energy.

Here is a collection of views from industry analysts and wealth managers.

Goldman Sachs revised its forecasts today. “With control of the Senate by a narrow margin, Democrats are likely to pass further fiscal stimulus in Q1 that we expect to total about $750 billon, including $300 billion in stimulus checks. However, discouraging news on the virus front – including the slow pace of vaccination and the emergence of more infectious virus strains – suggests that the spending boost from stimulus will be more lagged than usual.”

Outside fiscal policy
"Other legislation would likely need 60 votes to pass in the Senate; more than one Senate Democrat has already publicly opposed eliminating the filibuster. This means that bipartisan support would still be necessary to pass legislation on issues like infrastructure, a minimum wage increase, tech regulation, and environmental policies,” Alec Phillips from GS research said.

In his morning brief, Deutsche Bank’s Jim Reid noted that the Georgia count gives Biden more flexibility in appointing senior positions as the Senate approves a raft of posts, including the cabinet, ambassadors, judges and the Federal Reserve Board of Governors.

Asian markets moved higher overnight, with only Hong Kong's Hang Seng index (-0.38 per cent) down on news that the Trump administration may bar investments in China’s Alibaba Group and Tencent. “Investors might have difficulty unwinding their positions in these companies if this indeed happens as at $1.3 trillion, the combined market value of their primary listings is nearly twice the size of Spain’s stock market, while the firms together account for about 11 per cent of the weighting for MSCI’s emerging markets benchmark,” Deutsche's Reid said.

Global stocks have largely shrugged off chaos in Washington was the view of chief market strategist at FXTM, Hussein Sayed.

“The scenes that played out in real-time across global cable television did nothing to alter expectations of the near to mid-term political and economic outlook… President-elect Joe Biden will push hard on reviving stimulus and that is why we are seeing small caps and cyclical stocks outperforming growth. Yields on US 10-year Treasuries are up 13 basis points from Monday’s close, hovering around 1.05 per cent, the highest level since March. Meanwhile, the dollar remains stuck near three-year lows as rising debt levels, along with low interest rates, are expected to keep putting downward pressure on the Greenback."

Manager of M&G’s Climate Solutions Fund, Randeep Somel, believes the election results will give Joe Biden's and House speaker Nancy Pelosi’s policies more headroom, especially on climate action.

Biden campaigned to increase corporate tax rates to 28 per cent (from 21 per cent) and raise income taxes for those earning more than $400,000.

While corporate tax rate hikes are not guaranteed, yesterday’s senate results makes it more likely. “US futures have reacted slightly negatively to the news so far,” M&G’s Somel said. He also believes the outcome will turn the heat on those US technology companies under House investigation last summer for uncompetitive practices.

Climate boost
The key long-term opportunity for the Biden administration though is moving climate policy many analysts suggest.

“Biden campaigned to take the US back into the Paris Climate Agreement, but this action would have largely been symbolic without policy, something the Republican Party have not shown signs of ceding ground on,” Somel said.

He also campaigned for a clean energy revolution, which includes $2 trillion of federal spending over a four-year term, which is more likely now that Democratic spending won’t be blocked by Senate Republicans, he said.
 
Somel sees Democrat control “significantly escalating” renewable energy for electric power generation, and getting to some of the ambitious emissions-free power targets set for 2035. It should also spur four million building upgrades to meet much tougher energy efficiency standards, and stimulate electric vehicles adoption, he said. The US government is also offering tax incentives to replace older cars and funding around 500,000 new EV charging stations.

"Biden has consistently expressed his dismay that it is China rather than the US leading the world in green technology, especially in electric vehicles. Hopefully, the next East-West arms race will be to see who can develop an economy best equipped to reach net zero,” he added.




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