An inconclusive US presidential election could post downside risk to global financial markets — AmInvestment

An inconclusive US presidential election could post downside risk to global financial markets — AmInvestment
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KUALA LUMPUR (Oct 20): An inconclusive vote in the 2020 US presidential election may lead to prolonged political turmoil in the US, and this could post significant downside risk to global financial markets, including the FBM KLCI, said AmInvestment Bank Bhd. 

In contrast, a conclusive US presidential vote would spark a relief rally globally. The US presidential election day is just two weeks from now and will be held on Nov 3, a Tuesday. 

“We believe the market’s concern over a potential election impasse is valid. With the election being less than two weeks away, incumbent US President Donald Trump has not budged from his threat to challenge the legitimacy of postal ballots, and hence the outcome of the election, in the court,” said AmInvestment Bank in a strategy note today. 

The research house said such an election impasse occured in the 2000 US presidential election, where the result of the presidential vote was only decided 36 days after the election day on Nov 7, 2000 as Republican George W Bush won only by slim margin in the state of Florida and was required to recount the vote by the state law. 

Amid the impasse, the Dow Jones Industrial Average (DJIA) lost as much as 5.2% at the lowest point (on Dec 1, 2000). The KLCI moved in tandem, tumbling about 5% during the same period. 

“If the outcome of the vote in the coming 2020 US presidential election does come down to a court decision again, we envisage an impasse that could easily top the 36 days recorded during 2000. If that happens, we believe potential damage to the stock market could exceed the 5.2% recorded then,” the research house added. 

On the local front, AmInvesment Bank maintained its year-end KLCI target at 1,530 points — pending the outcome of the US election — based on 16.5 times 2021 earnings projection of a 34.2% growth after an 18.3% contraction projection for 2020.
 
It added that it had moderated its target multiple for the KLCI to 16.5 times from 18 times (the five-year historical average) largely to take a one-off spike in earnings of component stock Top Glove Corp Bhd estimated for 2021 into consideration.

Meanwhile, AmInvestment Bank reiterated that the fourth quarter of this year (4Q20) shall mark the market’s shift from a predominantly pandemic-themed one to recovery-focused. 

Despite setbacks for certain vaccine trials, it noted that the world is no doubt getting closer to the availability of a safe and effective Covid-19 vaccine by the day.

Sectors poised to benefit from a recovery in demand or pent-up demand post the Covid-19 pandemic are technology, healthcare, power, seaport, airport and auto. 

Hence, the research house's top picks reflect names that are likely to benefit from a recovery of the domestic economy, the export sector as well as global trade. 

These are Malayan Banking Bhd (Maybank), RHB Bank Bhd, Tenaga Nasional Bhd (TNB), Axiata Group Bhd, Dialog Group Bhd, Westports Holdings Bhd, Malaysia Airports Holdings Bhd (MAHB), Allianz Malaysia Bhd, MMC Corp Bhd and MBM Resources Bhd.

Surin Murugiah