Source: CITIC Securities Research

Author: Cui Rong, Li Chong

Election outlook: It is expected that it may still be intense, and there is a high probability that a “lame government” led by the Democratic Party will form.

Presidential election: Biden has a slight advantage.Biden, Trump, and DeSantis are the main candidates in the general election, making it likely that Biden vs. Trump will end in the primary election. Currently, Biden has a slight advantage in approval ratings.

Bicameral elections: There is a high probability that a “lame government” will be formed.The election results for both houses of the Democratic Party may be pessimistic. The probability that the Republican Party will win the Senate is relatively high, while the House of Representatives is more anxious, and the Democratic Party has a slight advantage.

Total impact: Focus on the division and unification of “one government, two houses”; the general election is phased against US stocks and favors the US dollar.

US economy: The “unified government,” especially the Democratic government, is more likely to introduce active fiscal and infrastructure policies. Uncertainty is low, and it is more conducive to economic growth.The Republican Party may support infrastructure through structural adjustments to fiscal spending.

US debt: The hedging effect is not significant; the result of a “unified government” is conducive to rising interest rates.The “unified government” is more inclined to increase debt leverage (Democratic Party) or increase foreign policy uncertainty (Republican Party) and cause US debt to rise.

US stocks: It is expected that the increase in US stocks will be relatively small and the volatility will increase under the intense game between the two parties.Uncertainties in the September-October election year adversely affected US stocks in stages; furthermore, the increase in US stocks was relatively small and the volatility increased during the election year where competition between the two parties was intense.

USD: The US dollar index was significantly stronger in election years than in normal years.Moreover, compared to a “lame” government, a unified government with “one government, two houses” may be more favorable to the US dollar index.

Industry influence: The policy support of the two parties in the field of infrastructure is highly definitive, and attention is paid to sector policy differences.

Energy:The Democratic Party is on renewable energy, and the Republican Party emphasizes strong support for fossil energy and biofuels.

Climate Change & ESG:The Republican Party is conservative and DeSantis is more hawkish, calling ESG “the politicization of the economy.”

Technology & platform companies:The Democratic Party's policy favors fiscal stimulus to support technological progress, while the Republican Party emphasizes strong regulation of international investment and mergers and acquisitions.

Manufacturing & Infrastructure:The policy support of the two parties is highly definitive, but they have different areas of focus. The Democratic Party focuses on public transportation infrastructure; while the Republican Party focuses on areas such as power grids, energy transmission, and cybersecurity; furthermore, the Democratic Party's manufacturing backflow policy may benefit the steel, general equipment, transportation equipment, and electrical equipment sectors.

Finance & Medicine:The Republican Party's tax cuts, regulatory cuts, and health-care programs are relatively favorable to asset prices.

Geological impact: The republican administration may bring the Russian-Ukrainian conflict to a relatively quick end and give a chance to improve Sino-European relations.

International Cooperation:If the Republican Party wins the election, the US may return to conservative tendencies through international multilateral cooperation.

Central America:Pay attention to the differences in areas of focus and policy ideas between the two parties. Looking at key areas of focus, the Democratic Party focuses on semiconductors, artificial intelligence, pharmaceuticals and devices, platform-based enterprises, resource security, clean energy, information technology, and military industry; the Republican Party focuses on trade deficits with China and cross-border investment review and regulation; from a policy style perspective, the Democratic Party often wins over so-called “allies” and introduces targeted policy tendencies; while the Republican Party usually uses trade policies and often targets so-called “allies,” the emotional impact is strong.

US and Russia:If the Republican Party takes control or there is marginal mitigation to a certain extent, and the Russian-Ukrainian conflict is resolved relatively quickly.

America and Europe:If the Republican Party takes power or the margins turn cold, and the relationship between China and Europe is ushered in an opportunity for improvement.

Middle East:Strategic contraction and normalization or continuation of relations between Saudi Arabia and Israel; the Republicans' dominance of US-Iran relations or marginal rigidification.

Risk Factors:

The timing and pace (fast) of the US recession was slower than expected; changes in the election process and approval ratings for major candidates exceeded expectations; changes in Trump's accusations exceeded expectations; uncertainty in Sino-US relations; disturbances in sudden geopolitical events; and changes in relations between China and the US in other countries exceeded expectations.

Source: 538, Ballotpedia, Race to the WH (predicting current probability), Bloomberg, CITIC Securities Research Division (predicting major asset classes, sector impact, and geological impact) (Note: the probability of different situations occurring is calculated based on the latest data in early October; + indicates a positive impact, - indicates a negative impact. Only the short-term impact after the election results come out is considered here

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