Sell-off risk if US election result is contested
The risk of a contested result – which could take months to resolve – could lead to a sell-off, according to State Street Global Advisors (SSGA).
Raf Choudhury, SSGA Australia head of investment strategy and research, said the current risks were hard to price from a market perspective.
“The risk of a contested result, that could take months to resolve, should not be overlooked; the last time we had a contested election was in 2001 – Bush vs Gore,” Choudhury said.
“That created a 36-day delay before the US Supreme Court eventually ratified the result which saw Al Gore concede to George W. Bush.
“By that time it was mid-December and markets had to endure a long period of uncertainty. That uncertainty led to a broad sell off across markets.
“Not only did US equities – both large and small – fall, but so did non-US stocks. The riskier small-cap equities fell the most, declining by over 7% over that 36-day period; at one point, they were down by double digits.”
Although Democratic Party candidate Joe Biden was leading in the polls, there was still caution over anticipating the result as Hillary Clinton similarly had a lead in 2016.
There was also the factor of actual voter turnout, as well as the controversy of postal voting.
“COVID-19 means we will see a large proportion of postal votes – something Trump repeatedly claimed through the first presidential debate as being rigged,” Choudhury said.
“He was clearly laying the foundations to contest the result by already questioning the legitimacy of this election.”
The deciding factor in the election could be the Supreme Court, which now had a 6-3 conservative lean as Amy Coney Barrett replaced the late Ruth Bader Ginsburg.
“In rushing to fill Ginsburg’s seat, he has had to contend with allegations that his urgency is centered around the desire to get an ally in the Supreme court,” Choudhury said.
“Should he contest the result, it would need a ruling from the Supreme court as it did in 2001.
“This is something that the market is keeping a close eye on as the biggest risk if there is a contested election result. That is still a risk despite the widening in the polls in Biden’s favour.”
AUTHOR
Chris Dastoor
Recommended for you
Grant Hackett has been promoted from CEO of Generation Life to head up the wider Generation Development Group.
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
