Markets

Scenarios emerging in US vote count now not very promising

By Ajay Bodke

In the US election vote count, what’s happening in the key battleground states like Michigan (16 electoral college votes), Wisconsin (10), Pennsylvania (20), Georgia (16) that have not yet been called ( i.e. put in the Red or the Blue tally) is that the process of counting absentee ballots or mail-in ballots that are usually counted after the counting of votes that are cast in-person (on the election day and on days prior to the election day) has started since last few hours.

In many Southern States that have already been called in favour of Trump the counting of mail-in votes by State law usually happens before the counting of in-person votes.

As traditional Democratic supporters were wary of contracting Covid-19 if they lined up to vote in large crowds and waited for hours in queues on the election day; a very large percentage of mail-in voters (some estimate it to be as high as 70 to 80 per cent) are estimated to be leaning towards Democrats.

Hence the narrow leads that Trump was enjoying in the above states are quickly shrinking, raising the hopes of Biden supporters that once ALL the votes are counted ( which in some states like Pennsylvania may take upto Friday) Biden will be able to win them.

Trump knows this and is hence trying to tar the legitimacy of the counting of millions of mail-in ballots across various States by falsely peddling the conspiracy theory of large scale fraud being perpetuated by the Democrats through these absentee or mail-in votes.

Already a few Republican supporters have moved petitions in courts in Pennsylvania asking for halting of the counting though we don’t know whether any Court will intervene and stop the on-going counting process.

Last time around Trump had won some of the battleground states with a wafer-thin margin of a few thousand votes. So it’s getting down to the wires.

On the Senate front the emerging view is that the Republicans may continue to hold their majority though counting in many seats is not yet complete.

A Biden Presidency and Republican Senate (the House is expected to be firmly with the Democrats) may create tension as Senate Republicans are impeccably opposed to large fiscal stimulus.

If Trump were to retain the Presidency with a Republican Senate, he would be in a position to force Senate Republicans in agreeing to a large fiscal stimulus if Trump feels that doing so would help propel economic recovery and aid financial markets.

In case Biden were to win and the Senate were to flip in favour of Democrats then a massive fiscal stimulus is expected but worries about large tax increases and stringent regulations governing banks, environment ( fossil fuels, mining etc) would cause worries for the market. Bond yields may rise sharply and risk assets could see a sell-off.

In case Trump wins but the Senate flips to Democrats then a divided government would create hurdles in getting major legislation through. Not a good scenario from the market’s perspective.

(Ajay Bodke is the CEO & Chief Portfolio Manager – Portfolio Management Services – at Prabhudas Lilladher Pvt. Ltd. Views are his own)

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