Shares surged, oil prices jumped and the dollar stayed weak on Monday as expectations of fewer regulatory changes and more monetary stimulus under US president-elect Joe Biden supported risk appetite.
The Democratic candidate’s victory at the US Presidential election was largely priced-in by markets, which had been trading with the view of a Biden presidency and a Republican-controlled US Senate since last week.
E-mini futures for the S&P 500 jumped more than 1.5 per cent on Monday while Nasdaq futures rallied over 2 per cent, signalling a positive start for US markets.
MSCI’s broadest index of Asia Pacific shares outside of Japan jumped 1.3 per cent to 613.95 points, the highest since January 2018. It had climbed 6.2 per cent last week to clock its best weekly performance since early June.
“While lots of attention was given to Trump vs Biden, markets have reacted strongly to the (likely) split Congress, which means more confidence that interest rates will be lower for longer,” said Dave Wang, portfolio manager at Nuveen Capital in Singapore.
Emerging markets in focus
“The best opportunities now lie within segments of emerging markets, in particular China and North Asia. I believe earnings momentum and valuation put China in a very attractive risk/reward position.”
Chinese shares started higher with the blue-chip CSI300 index up 1 per cent on hopes of better Sino-US trade relations under Biden.
Japan rose 2 per cent while the main indexes of Australia, Hong Kong and South Korea gained 1.7 per cent each.
Equities rallied hard last week, with the S&P500 up 7.3 per cent, clocking the best gains in an election week since 1932, according to National Australia Bank analyst Tapas Strickland.
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Oil prices jumped on Monday as investors cheered Biden’s victory, shrugging off worries about lacklustre demand amid rising global coronavirus cases. Brent crude added $1 to $40.48.
Word of caution
Analysts warned the road might get tougher from here as investors focus on Biden’s ability to expand fiscal stimulus and measures to reduce the spread of Covid-19.
The US saw a record number of new coronavirus infections last week, with the total number of cases nearing 10 million.
US-based wealth manager Jim Wilding at Confluence Financial Partners in Pennsylvania added a word of caution with the S&P 500 not far from all-time highs and equity valuations generally at heady levels.
A fiscal stimulus plan is still possible despite a divided government, analysts said, though a larger package is less likely. That puts the spotlight on the US Federal Reserve to do more to bolster the world’s largest economy.
As a result, the dollar has weakened in recent days while growth proxies such as the Australian dollar have rallied with the Biden presidency seen less likely to be confrontational on trade.
Investor focus will also be on sterling and the euro this week with UK-EU trade negotiations coming to a head with the EU summit on November 15.