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Pakistan Strategy_US elections – More things change, more they stay the same, (AKD Daily, Nov 06, 2020)

AKD Daily

Pakistan Strategy: US elections – More things change, more they stay the same

• In arguably one of the most analyzed events occurring at regular intervals (every four years) globally, we find clarity emerging in the impasse for the US Presidential election vote count, where it seems highly likely (multiple paths to electoral majority) that we will find a 46th occupant of the White House in Former Vice President Joe Biden.
• In this rare event of a US president losing reelection, we opine on the role played by US macros asserting that outperformance by emerging markets during Republican terms have more to do with dollar positioning (strength/weakness) rather than any political setups, hence flagging the negligible role in forecasting equity market performance solely on the basis of political regime.
• Looking ahead, a sustained environment of negative real interest rates and the need to encourage foreign investors to fund US deficits in the wake of the stimulus package would keep the dollar under pressure where conventional understanding assumes Biden is able to execute his proposal to raise corporate taxes, driving outflows from US equities.
• From a domestic macro perspective, commodity prices could undergo a bull-run, fueled by historic low-interest rates, trillions in US fiscal stimulus, recovering pandemic-struck economies across the globe (amidst vaccine optimism) where we remain cautious on the external math unraveling (~5% rise in core import/oil commodity prices would expand CAD by ~US$1.0/0.35bn).
• For Pakistan, under a Biden presidency, re-setting of relations with China is the major benchmark for US foreign policy going forward, where unilateral or antagonistic actions could take a back seat. Pakistan is expected to remain prominent, not just in terms of US troops pulling out from Afghanistan (major shifts in policy unlikely) but also with any re-engagement of US policy with Muslim majority countries, and of course developments in the domain of China & India relations.

AKD Research