New York: A last-minute Trump win will hit US stock markets with gale force and even the far away Bombay bourse will not escape the chaotic fallout, US fund managers running India dedicated funds said on Friday.
The world is waiting on the American electorate to deliver a clear mandate after this divisive, high-decibel wretchedly long election cycle. However, the heightened political uncertainty led the US stock market on Friday to log its longest losing streak since 1980. The S&P 500 fell nine days in a row on Friday to slump to 2085.18, while the Dow fell 42.39 points to close out the dismal week at 17,888.28.
"There are fears of an upset result and policy gridlock if Donald Trump wins. Much like India, we have two houses who have to agree on things and they never agree on anything. It's not even clear how many Republicans will support Trump policy," Seth Freeman, CEO and chief investment officer at San Francisco-based EM Capital Management LLC, told Firstpost.
"Trump's policies don't adhere to traditional Republican policy. Democrats will fight him and he may not even have the customary Republican support. It's going to take time for Trump to gain institutional respect," added Freeman, whose earlier US listed India-dedicated mutual fund owned both mid and large-cap Indian companies.
Clearly, a last-minute Trump win will queer the pitch for US fund flows into the Indian markets. Foreign funds have already pulled $106 million from the Bombay Stock Exchange so far this month. This is in addition to the $746 million they withdrew in October, amid rising assumptions of a US Fed rate hike in December.
"A potential US Fed rate hike and political uncertainty is a double whammy for global markets. We like India a lot, but we prefer to be cash heavy right now," said David Harris, fund manager at B.V Asset Management.
The good jobs report that came out in the US on Friday is likely to encourage the Federal Reserve to hike interest rates at its December meeting.
"US fund managers dislike uncertainty so if they are investing in emerging markets they may hold. They will reduce their exposure to global markets including India till the dust settles on the Fed rate hike and US elections. We are also going to see some redemptions from India in the fourth quarter because the Indian market has gone up pretty well. They will want to take some gains," said Freeman.
Investors say they are surprised by how quickly the US presidential race has tightened and become a cliffhanger between Clinton and Trump. However, you are likely to get a different take on the polls depending on who you ask. "The New York Times" pegged Clinton as a clear winner and gave her an 84 percent chance of occupying the Oval Office.
"The Upshot’s elections model suggests that Hillary Clinton is favored to win the presidency, based on the latest state and national polls. A victory by Mr. Trump remains possible: Mrs. Clinton’s chance of losing is about the same as the probability that an N.F.L. kicker misses a 38-yard field goal," reported The New York Times.
However, Fox News which has a large Republican viewership thinks that several battleground states are leaning towards Trump after the FBI's October surprise.
"If Clinton were to win all the states leaning toward or solidly in the Democratic column, she’d have 283 electoral votes — more than the 270 needed to win," reported Fox News.
"If Trump were to win all the states leaning toward or solidly in the GOP column, he’d be short at 192 electoral votes. But winning all the toss-up states would put him just 15 electoral votes shy of 270," it added.
Clinton is clearly the stock market darling as she represents continuity and no threat to the global trade order. Trump's aggressive anti-free trade rhetoric has rattled markets and sparked fears of protectionism. If Clinton takes the White House the US markets are likely to see a relief rally that will cheerily spread to other parts of the world.
"If Trump wins, you get a big, ugly sell-off. If Clinton takes the White House, you get a big relief rally," said Tejaswi Patel, CEO of the New Jersey headquartered Evyavan group which manages an India focused fund.