JP Morgan sees US election aftermath positive for shares

Post-election politics will be more positive for US equities than many fear, presenting a buying opportunity, JP Morgan said.

The US presidential election takes place on Tuesday with Democratic candidate Joe Biden ahead in major polls but with doubts hanging over swing states and a potential contested election.

Markets are likely to become more risk-friendly whatever the outcome of the US election, JP Morgan analysts said, reiterating their 'overweight' position on US equities. A decisive result either way would bring clarity and a contested poll would be a chance to buy on weakness, they added.

"Any clear result is likely to be seen as a positive, with investors then able to look forward to a fiscal stimulus down the line," Mislav Matejka, JP Morgan's head of global and European equity strategy, said in a note. "Stalemate/contested elections would lead to further risk-off trading, but we believe that if such a scenario arises, one should be using the weakness as an opportunity to add exposure on a 3-6 month horizon."

A Democratic sweep of the White House and Congress could cause initial weakness because of worries about higher taxes and more regulation but "we believe that this too will be an opportunity to add, as the fiscal support will likely be ramped up significantly", Matejka said.

Divergence between the US market, up 2% in 2020, and Europe, down 18%, and between China and non-Asian emerging markets could start to close in 2021 based on the election result, Matejka said.

"These calls would be partly dependent on the US election outcome, where, if Trump stays the president, the likelihood of a strong international vs US performance convergence would go down," he wrote. The US is likely to outperform Europe and China is likely to do better than other emerging markets, he said.

JP Morgan is 'neutral' on eurozone and UK equities after upgrading the UK from 'underweight' over the summer. A large gap has opened up between the FTSE 100 and bond yields as well as against the pound, the bank said.

"UK valuations now look exceptionally attractive," Matejka said. "Within the UK, we believe certain domestic plays, such as homebuilders and utilities, remain attractive, as well as exporters such as mining, pharma and staples."