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America's Political Landscape Goes Blue: Wealth Managers React

Jackie Bennion

8 January 2021

The dismal scenes on Capitol Hill on Wednesday 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 monopolised TV coverage.

’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; this was the view of chief market strategist at ’s Climate Solutions Fund, Randeep Somel, believes that the 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, Wednesday'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 agreed that 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.

Wealth and estates
Looking at how the new majority affects taxing the wealthy and their estate planning strategies, Jim Bertles, managing director of said: “A 100 per cent Democrat victory (and unified control of Congress and the House) means that the “leftist” part of Joe Biden’s programme could eventually be implemented. This is bad news for bonds, but nothing has really changed since 4 November when we knew that a huge blue wave at the Senate was unlikely.

"Biden will most likely implement a centrist policy (probably slightly more “leftist” than Clinton and Obama) and, although the bond market’s reaction is understandable, it seems a bit exaggerated. The most important factor, we believe, is the behaviour of the Fed and the beginning of a kind of cooperation between Chair Powell and Janet Yellen (Secretary of Treasury), with the aim of restoring inflation."

Investment strategist at : “Shorting the Greenback is one of the market’s biggest consensus trades for 2021. A positive US-specific growth boost coupled with rising US yields isn’t normally a combination we would expect to see driving the currency lower.

"Should the dollar do an about-face it will provide some welcome relief to the world’s exporters but it might not be so welcome in financial markets which often associate a rising dollar with periods of risk off. That association is very often a self-fulfilling prophecy.”