Path of victory for Biden
Current preliminary results point to a tight race with Biden potentially securing exactly 270 electoral votes needed to be elected as president (Figure 1). Having won Wisconsin and Michigan, he will just need to maintain his lead in Nevada (6 electoral votes) to have a marginal victory. In the event whereby he lost Nevada, he will have to turn to Pennsylvania as his next best alternative (Figure 2). Georgia and North Carolina may have already accounted for the bulk of mail-in voting and hence, we think it is unlikely to flip towards Biden.
Trump will have a harder path towards presidency. His only path to victory is to maintain his lead in Georgia, North Carolina and Pennsylvania. He also has to flip Nevada from Biden.
Race for Senate
Unable to successfully flip Iowa and Montana, the Democrats may face challenges for control of Senate. The race for Senate is closely tied to the presidential race, with several senate toss-up states being key battleground states for the presidential election. The Democrats’ possible path to victory is to retain Michigan and flip Alaska, while aiming to flip Georgia special election later in January (Figure 3). The scenario is possible but unlikely. Therefore, we believe that the Republicans will continue to retain control of Senate.
With that, we believe that the most likely scenario from the U.S. election will be a potential Biden presidency with split Congress. We summarised the potential impact of his policies across key areas and sectors/industries below (Figure 4, Figure 5).
We favour the clean-energy space with Biden’s US$2tr climate plan if he is elected. The extent of the stimulus may be reduced under a split Congress but the secular shift towards clean energy will continue to accelerate under his term. Near-term, investors may be cautious that fiscal relief stimulus for Covid-19 may be reduced under a split Congress. Financials and energy sector may remain under pressure.
However, over the longer term, we favour accumulating large U.S. banks on weakness based on their attractive risk-to-reward proposition. A split Congress may lead to resistance from reinstating some of the financial regulations which were rolled back during Trump’s term. Biden’s proposed tax hike may also be reduced or may not passed, which may favour big tech companies.
We also favour the healthcare industry. A divided Congress will likely lead to resistance towards big legislation and we may end up with little or no structural change. This would remove uncertainty for the healthcare sector and would be seen as largely positive.
Overall, we remain bullish on the market in 2021. Below is a list of sector ETFs which investors may be interested in (Figure 6).