Markets stage relief rally over Biden's presidential victory

De-escalation of trade tensions, cut in tariffs expected but not all blue skies ahead: Experts

For Singapore-based contract manufacturer Watson EP Industries, the pressure of having to move its audio speaker production for the US market out of China has eased with President-elect Joe Biden's win.
For Singapore-based contract manufacturer Watson EP Industries, the pressure of having to move its audio speaker production for the US market out of China has eased with President-elect Joe Biden's win. PHOTO: WATSON EP INDUSTRIES

For Singapore-based contract manufacturer Watson EP Industries, a Joe Biden presidential victory is a "ray of hope in the time of Covid-19" as the pressure has eased on it having to move its audio speaker production for the United States market out of China.

Already hit by high tariffs from the US-China trade war, its US clients had considered moving production to avoid having to keep paying tariffs as pandemic-induced lockdowns took their toll on global demand for audio speakers at concerts and events.

Even though tariffs on the firm's exports from its factory in China to the US had been cut to 7.5 per cent from 15 per cent last year, Watson executive director Joyce Seow said: "We kept our mitigation plan in place because (Donald) Trump is so erratic."

She added: "We have to wait for Biden to get into his role first. Hopefully in two to three months, there will be more clarity on Biden's approach to global trade."

Hopes of a de-escalation of geopolitical tensions under the President-elect's administration and a possible reduction or rollback of tariffs animated the rally in stock markets globally and in Singapore yesterday.

Across Asia, most markets started the week on a positive note, led by Japan, Shenzhen and Thailand. All three markets posted a gain of around 2.1 per cent each. Hong Kong, Taiwan and Singapore each closed 1.2 per cent higher.

US stock futures were already sharply higher earlier yesterday with the uncertainty of the election out of the way. But they surged 5.87 per cent (as at 10.20 pm last night in Singapore) after Pfizer said its Covid-19 vaccine was 90 per cent effective.

"We expect to see a de-escalation of trade tensions, as Biden criticised how the US economy has suffered from the trade war," said Mr Daniel Gerard, senior multi-asset strategist at State Street Global Markets.

"Even though we don't expect the tariffs to be rolled back immediately, more constructive trade talks could bridge gaps in negotiations, helping remove risk for financial markets. Asia will be a strong beneficiary... due to its relatively better handling of the pandemic."

However, there has been bipartisan support and consensus in the US about containing China on multiple fronts beyond trade, technology and national security issues, Mr Ho Meng Kit, chief executive of Singapore Business Federation, noted.

"A Biden administration is likely to suggest a more measured approach towards US-China relations. It will be less pugilistic and more nuanced, relying on alliances with partners, multilateral frameworks and institutions, such as the World Trade Organisation (WTO) and World Health Organisation," he said.

Even as there are hopes that the US may rejoin the Trans-Pacific Partnership (TPP), which would be beneficial to Singapore and other members of the trade pact as the US market represents 60 per cent of the TPP's gross domestic product, observers say trade may not be the Biden administration's top priority.

"The concerns in the immediate term are managing Covid-19, US economic recovery, and climate change," Mr Ho said.

"While the status of the US' return to TPP is uncertain now, what we hope... is the US returning to international institutions, like WTO, to play a pivotal role in discussing and managing trade. This support for a multilateral trading system is critical to an export-oriented economy like Singapore's," he added.

Many are expecting the Biden administration to restore trade alliances and to pursue multilateral rather than bilateral trade deals, Maybank Kim Eng senior economist Chua Hak Bin said.

"There may likely be fewer charges of currency manipulation or undervaluation, and less preoccupation with the size of certain countries' bilateral current account surplus with the US."

Markets will likely no longer be on tenterhooks from tweet-led policymaking, observers say. "This is a relief rally after four years of Trump," CIMB Private Banking economist Song Seng Wun said.

"The markets seem to think there are blue skies ahead even though it is still cloudy," he noted, and warned, "we shouldn't expect the beginning of a reset in policy because the US election results show a very divided country, so making policy changes isn't going to be easy. In fact, the policy paralysis we saw in President Barack Obama's second term is a real possibility during Biden's term, given a divided Congress".

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A version of this article appeared in the print edition of The Straits Times on November 10, 2020, with the headline Markets stage relief rally over Biden's presidential victory. Subscribe