Equity

US presidential election jitters and an uptick in COVID-19 cases in the US and Europe triggered a downturn in global equities in October. Asian stocks, however, managed to turn in decent gains for the month, owing to a slowing pace of COVID-19 infections in the region and growing optimism over China’s economic recovery. The MSCI AC Asia ex Japan Index rose 2.8% in US dollar (USD) terms over the month.

We assess the US election outcome from the perspective of the Japanese equity market, focusing on the economic and policy changes that are expected to accompany the change in US leadership.

We discuss the reasons behind the Japanese equity market’s recent outperformance and the factors likely required for the gains to be sustainable in the longer term. We also assess the recent surge by the Mothers Index and key points to watch going forward.

The S&P/ASX 200 Accumulation Index returned 1.9% during the month. Australian equities were supported by the release of the Federal Budget early in the month which saw increased spending and tax cuts to aid the economy as it recovers.

In order to gain a range of perspectives on the US presidential election, Nikko Asset Management has gathered the views of the following experts and investment teams, representing many of our major asset classes and geographical regions.

At the time of writing, Democrat presidential candidate Joe Biden leads the polls by 10 percentage points and will likely be elected President of The United States on 3 November 2020. The potential for a Democrat “Blue Wave” with control of both houses easing the passage of legislation also seems possible.

With the global outbreak of COVID-19 in the first half of 2020, the world was turned upside down. Under such circumstances, Japanese companies are now faced with new challenges to adapt to this “new normal”.

October 2020 Second and third waves of the virus will also slow the recovery. But importantly, mortality rates have been lower, suggesting that the world continues to learn to live with the virus without requiring broad lockdowns.

After three consecutive months of strong gains, Asian stocks finally succumbed to profit taking in September triggered by concerns that the global recovery from the COVID-19 pandemic could be running out of steam.

The S&P/ASX 200 Accumulation Index returned -3.7% during the month. Australian equities lagged most developed markets during the month, as most markets took a breather in September.