KUALA LUMPUR: With the 2016 US presidential election going down to the wire, and touted as the most divisive and polarising one in US history, AmInvestment Bank Research reiterates its view that a win by Hillary Clinton, while very much the stock market's "base case", would still trigger a relief rally in the markets with the removal of the "Trump presidential risk premium" from the equation.



“Technically, we expect DJIA, S&P 500 and NASDAQ to recover from Nov 4 lows by 1.6%, 2.4% and 5.7% to 18,170; 2,135 and 5,335 respectively over the immediate term. As all boats float on a rising tide, we believe FBM KLCI, technically, should recover by 1.4% to 1,672 as well,” it said in its strategy report on Tuesday.



Under this scenario, AmInvest Research will maintain its end-2017 FBM KLCI target of 1,745, which is at a one-time multiple premium to its five-year historical average of about 16.5 times. This premium is to reflect the sustained accommodative monetary policy stance adopted by central banks globally.



“We do not rule out the possibility that a Clinton victory could spark uncertainties too,” it said.



It pointed out that first, Trump’s wild claims of election rigging and his refusal to accept a Clinton victory is seen as an attack on a key pillar of democracy. It will legitimise potentially violent protests.



Second, the Republicans in Congress have said that they want to make Clinton’s life tough. They are contemplating to execute this with a range of inquiries and even impeachment.



Third, if the Republicans retain the Senate control, they are likely to refuse Clinton’s nominee to fill the important Supreme Court vacancy, blocked by them since March.



“If this scenario plays out, the US$ may come under pressure and the economic outlook may deteriorate, raising the possibility for the economy slipping into ‘technical’ recession. Appetite will be for safe haven instruments like currencies such as yen, US papers and gold,” it said.



AmInvest Research said a win by Donald Trump will trigger a major selloff “which we believe that could last for days, weeks or months”, as the market tries to get a better grasp of what is in store for the US and global economies under the more radical tax, foreign relations, international trade, immigration, healthcare and fiscal policies proposed by the Trump administration.



Technically, from the Nov 4 lows, the research house expect DJIA, S&P 500 and Nasdaq to fall further by -4.5%, -4.1% and -7.1% to 17,075; 2,000 and 4,690 respectively over the immediate term.



“We do not believe theFBM KLCI would be spared, and technically we believe it will ease -2.0% to 1,615 to retest the June’s low.



“Under this scenario, we cut our end-2017 KLCI target by 100 points to 1,645, which is at a zero premium to its five-year historical average of about 16.5 times.



“This to reflect the uncertainties in the US and global economies under the Trump administration, that would offset the premium arising from the sustained accommodative monetary policy stance adopted by central banks globally,” said AmInvest Research.

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