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Pakistan Strategy: US Elections & Impact on Pakistan

• The much anticipated US elections will come to a close on Nov 3, 2020. The Republican President, Donald Trump, is being challenged by Democratic Party nominee Joe Biden, who is best known as Barack Obama's Vice-President but has been in US politics since the 1970s.
• Biden is leading National Presidential Polls by 52% to 43% (source: BBC). National polls are a good guide as to how popular a candidate is across the country as a whole, but they are not necessarily a good way to predict the result of the election.
• In 2016, for example, Hillary Clinton led in the polls and won nearly three million more votes than Donald Trump, but she still lost – that is because the US uses an electoral college system, so winning the most votes does not always win you the election.
• We believe, the outcome of US Elections 2020 is unlikely to have major repercussions on Pakistan unlike the past. Key areas that Pakistan will keep a close eye on, if Biden wins, will be his (1) trade policy with China, (2) ties with India, (3) policy on troops pull-out from Afghanistan and (4) financial assistance to Pakistan (including IMF).
• Biden is likely to ease stance on China adopted by President Trump, who has termed China as the biggest threat to the US right now. This in turn is likely to be a positive for Pakistan, given long standing relationship between Pakistan and China and also the China Pakistan Economic Corridor (CPEC).
• President Trump and Prime Minister Imran Khan have enjoyed a strong relationship, where President Trump in Jan-2020 hailed the growing relationship between the US and Pakistan. However, Trump’s also close relationship with India has somewhat left a sour taste with Pakistan, where PM Imran Khan had recently said in an interview that Pakistan wants ‘even-handed treatment’ from the US with respect to India.
• We expect Biden to continue with Trump’s policy of US troops pull-out from Afghanistan, however in a more gradual and measured way.
• Historically, Pakistan and Democrats have held a relatively more fruitful relationship, where it was under the Democrats that the Kerry-Lugar-Berman Act was approved – the largest civilian assistance package to Pakistan. However, It is under President Trump that Pakistan signed the latest IMF program. The US is the largest cumulative contributor to the IMF and the largest voting bloc – holding effective veto power for many decisions. 
• We believe Financial Markets are likely to see a relief rally on the conclusion of the US elections given that uncertainty is likely to end.
• The two parties have failed to reach an agreement over a fiscal stimulus package, which we believe will pass after the elections irrespective of the outcome of the elections.
• The markets may however will be keen to see the structure of the government (President and the Senate).
• At present, the US have a Republican President and a Republican Senate (though the House is Democrat).
• A unified government is likely to be appreciated by the financial markets as a divided government is likely to result in policy standoff between the President and the Congress.

The US market’s reaction to a Republican win has been much better compared to a Democrat win. The PSX has largely mirrored US equities performance post the outcome of the US Elections.