Analysts see benefits from US midterms

Checks and balances may ease uncertainty

Today's US midterm elections could benefit Thailand and global trade, as stronger checks and balances between Congress and President Donald Trump could reduce US policy uncertainty and ease market volatility, analysts say.

Apichart Phubanjerdkul, senior director of the strategic analysis division at Tisco Securities, expects the Nov 3 US midterm elections to have a positive impact on financial markets, potentially easing policy uncertainty and supporting a recovery in Thai equities later this month.

Current polls and prediction markets suggest that the Democratic Party has a strong chance of winning control of the House of Representatives, while the Senate race remains relatively close.

"Election results could help reduce market volatility by strengthening the system of checks and balances between Congress and the president, potentially limiting policy uncertainty," he said.

Historical data also show that US equities tend to perform positively following midterm elections, generating returns of around 1% to 6% over the following 1-3 months, with a 70-80% probability of positive returns.

He expects markets to remain volatile during the first half of November. However, Thai equities could recover in the second half of the month as investors gain greater clarity on the election results and corporate earnings.

For their investment strategy, Mr Apichart recommends that investors prepare for heightened short-term volatility by diversifying their portfolios across different investment themes.

According to Prakit Siriwattanaket, managing director of Merchant Partners Asset Management, historical data show that the S&P 500 has risen in the six months following every US midterm election, regardless of which party controls Congress, with the difference lying mainly in the magnitude of the gains.

Records covering 20 midterm elections between 1946 and 2022 show that the president's party has generally lost seats in Congress. The House is more likely to change political control because all its seats are contested every two years, compared with one-third of Senate seats, said Mr Prakit.

The 2018 election illustrates this pattern. Democrats gained control of the House while Republicans retained the Senate under President Trump. The S&P 500 rose in November before falling sharply in December, then recovered in the first quarter of 2019, partly supported by the Federal Reserve's shift towards a less restrictive monetary policy, he noted.

CONFLICT CLOUDS MARKETS

Some investors, meanwhile, have adopted a wait-and-see approach amid concerns over a possible US military strike following the Nov 3 midterm elections.

Trump had indicated that no further attack would take place before the midterm elections, prompting speculation over whether military action could resume after the vote. Investors are closely monitoring the situation, said Pichai Lertsupongkit, chief commercial officer at InnovestX Securities.

The uncertainty has increased demand for safe-haven assets and defensive stocks. As a result, gold prices have rebounded after falling below US$3,900 an ounce late last week to reach their lowest level of the year, noted Mr Pichai.

Krungsri Securities (KSS) shared a similar view, saying the risk of conflict had risen, with some media reports citing US officials as saying Washington was preparing for a short but intense military operation against Iran, potentially as early as Nov 4.

"The market is likely awaiting the US response, specifically from Trump, following the midterm elections on Nov 3, with results expected on the morning of Wednesday Thailand time," said the brokerage.

If the US resumes attacks on Iran, particularly if Iran retaliates by targeting energy infrastructure or the Strait of Hormuz, supply risks would rise, pushing up Brent crude prices and adding inflationary pressure, KSS added.