Trump’s US election victory to reflect positively on markets, lockdown concerns weigh on Tadawul: analysts

Global and regional investors are anticipating the results of US presidential election on Tuesday, Nov. 3.

Several analysts were surveyed by Argaam to give their opinions about the impact of the US election on market performance, where Republican nominee and incumbent president, Donald Trump, is being challenged by Democratic Party nominee Joe Biden in the race for the US presidency.

Analysts were also surveyed to comment on the slump of the Saudi Stock Exchange (Tadawul) and its expected performance going forward.

“The markets have started to feel the impact, which reflected on overall prices. Based on statistics, Biden is likelier to win the US presidency race. Accordingly, markets are reacting negatively to this forecast,” Mazen Al-Sudairi, Head of Research at Al Rajhi Capital, said.

He further added that Trump’s win of the second term in the 2020 US election will be surprising and will have a positive impact on the markets. Moreover, the world’s energy sectors are demonstrating negative performance amid concerns of Biden’s victory.

With regard to Tadawul, Al-Sudairi expects the corporate earnings to reflect on the market performance, pointing out that the property deal tax had a positive impact on construction, employment and banking sectors on the level of mortgage loans. In addition, the petrochemical sector reported solid results. 

Reinstated lockdown in Europe could put oil demand under pressure, the analyst said, adding that Europe consumes 20 million barrels, of which the share of France and Germany stands at 4 million barrels each. 

The recent lockdown could lead to a drop of up to 1 million barrels per day in the demand for oil, which has recently pushed oil prices down, pressuring banks and other leading industries.  

“An increase in the number of individual shareholders makes the market more fragile. Some elements have a conflicting impact. However, if COVID-19 returns stronger, there are various risks that might affect the reopening of economy and improved profitability, especially in the petrochemical sector,” he explained.

Meanwhile, Al-Sudairi said a COVID-19 vaccine is likely to be available in the fourth quarter of the year, as three companies are in the third phase of the vaccine trial.

On the other hand, Mohamed Alsuwaidi, Executive Director - Asset management, Emirates Investment Authority, told Argaam that Trump’s possible defeat means a different effect on the monetary policies and stimulus programs. Trump played a direct role in the US stock market rally over the past years.

“It’s difficult to predict the US election results or Biden’s actions, especially that his statements show he will be more tolerant with capital markets,” Alsuwaidi added.

In addition, Alsuwaidi warned of concerns about the economic lockdown amid the second wave of coronavirus. Some countries have reinstated lockdown, which will in turn push oil prices down, and hence weigh on the Saudi economy directly on the level of budget and market gains, with respect to oil prices and global market performance.

Lower oil prices will affect the profit of key sector players, that lead the stock market index. “Though the Saudi economy is steered by new sectors, such as healthcare, food and cement, these industries cannot lead the market,” Alsuwaidi added.

No sell-offs have been witnessed yet in the market to date. “What is happening now is that investors are abstaining from buying as stock prices are unattractive currently amid inflated prices,” he pointed out.

Thamer Al-Saeed, chief investment officer at Mad'a Investment Co., said the victory of Trump or Biden will not have a direct impact on the Saudi market, but the effect on other global markets might reflect on Tadawul’s trajectory.

He added that some listed companies that have a direct relation with the US market could be impacted in case rules and regulations are changed if Biden wins the election.

Some investment companies expect the election results to weigh on the markets by the victory of either Trump or Biden. They forecast Trump’s victory to push the markets 14% higher, unlike Biden who plans to raise the tax on private sector companies – a matter to which the market reacts negatively.

Although oil prices hit their lowest, demand for oil products started to rally, which will reflect positively on Saudi Aramco and the petrochemical companies if the average oil prices exceed $55 per barrel.

Tadawul All-Share Index (TASI) gained 40% in six months, and this vertical rise made the market more vulnerable to fluctuations, Al-Saeed said, noting that speculators react rapidly by exiting the market.

“This is what happened, in addition to the rumors related to the return of lockdown, which was denied by the Ministry of Health,” he added.

“The market no longer rises due to lack of balance, as it was moving vertically. After sell-offs, the bourse lost momentum, balance and started to fluctuate,” Al-Saeed pointed out.