(Bloomberg) — An expected surge in election-related volatility in the U.S. stock market is paving the way for Asian shares to make a run at besting their American peers.
Since hitting an all-time low relative to the S&P 500 on Sept. 2, the MSCI Asia Pacific Index has outperformed the U.S. benchmark by almost five percentage points. That nascent trend is expected to persist at least through the November poll and potentially beyond, according to strategists.
“There is a better than average chance that Asian stocks will outperform U.S. stocks over the course of the next month,” said Eoin Murray, head of investment for international business at Federated Hermes. “The volatility rise will be more pronounced in U.S. risk assets, and will pervade more globally but with less strength.”
Fears about a contested election result and President Donald Trump’s decision not to push for further stimulus ahead of the vote have helped contribute to the recent weakness in U.S. equities. Meanwhile, a growing belief in a Joe Biden victory and Democrats winning control of both houses of Congress is seen benefiting Asian stocks by reviving the U.S. economy and trade flows.
Biden has a 12 point lead over Trump, according to a national poll of likely voters released Sunday, a little more than three weeks before the vote. The Washington Post/ABC News poll was conducted Oct. 6-9.
“The probability of Asian equities’ outperformance will be higher under a Democratic landslide win,” said Nader Naeimi, head of dynamic markets with AMP Capital. “I firmly believe that trend will continue, Asia is under-owned and the U.S. is over-owned.”
Asia will also benefit from China’s strong economic recovery, a weakening dollar that has likely seen an end