Despair in Asia over the Democrats’ sweep of the US Congress turned into cautious bullishness as Wall Street woke up on Wednesday. Investors in East Asia, a region at the centre of the AI chip supply chain, interpreted the vote as a clear rejection of AI. Japan’s Nikkei index touched a five-month low, with shares in SoftBank falling nearly 9% in intra-day trading, say Peter Landers and Gunjan Benerji in The Wall Street Journal. South Korean and Taiwanese indexes also sold off.
An NBC exit poll showed that 56% of US voters regarded data centres as a “crucial or major factor” in how they voted. Texas and Georgia, which have both elected Democratic governors, together account for “about a third of all AI data-centre spending and projects”, says Tapas Strickland of Moomoo ANZ. “The fear is that the pace of the AI infrastructure roll-out could slow, potentially quite markedly in Texas,” where Democrats want a moratorium on new data-centre development.
Still, more red tape may not burst the AI bubble. “State-level restrictions could have implications for specific” companies and data centres, but ultimately ‘data-centre projects will probably shift to friendlier states”, Gil Fortgang of T Rowe Price tells the Financial Times. The Democrats may slow data-centre development, but won’t want to “kill the goose that lays the golden eggs”, says Alicia Garcia-Herrero of Natixis.
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Democrats’ victory leaves glass half full for markets and investors
Markets bounced back on Wednesday as analysts encouraged a glass half-full view. First, Republicans did not contest the legitimacy of the US election results (no longer a given in the US). Second, a divided US government – with one party in the White House and another in Congress – is historically good for investors. “Control of Congress really only has implications for the economy if it means significant legislation can be passed,” says Daniel Morris of BNP Paribas Asset Management. We’re actually in the opposite scenario – gridlock is likely and hence no new regulation.
This is “the best possible outcome for markets”, says Nannette Hechler-Fayd’herbe of Lombard Odier. History suggests that, on average, the US equity market performs best in the third year of a presidential term, says Russ Mould of AJ Bell. Double-digit returns have been the norm since World War II, with only one presidential third year bringing losses.
But there is nervousness about how Donald Trump will react to a setback. Gold rallied 3% to $4,040 (£2,999) an ounce, suggesting investors are fearful. The vote will have “big implications” for US and global politics, but economically the direct implications won’t be huge, says Christopher Hodge of Natixis. Corporate earnings and the economic cycle are more decisive factors for investment returns.
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