Storming of Capitol by his supporters looking to be Trump’s last hoorah
Having for months been pondering the unpredictability of the outgoing US president, as far back as our late June publication underlined in this piece where we raised the spectre of another impeachment, https://asymmetric-advisors.com/markets-look-well-supported-for-now-but-wounded-trump-could-pose-a-big-risk/, we feel it is important to once again address the prospects of the last days of his presidency, a reign which has at times dominated market moves and provided much uncertainty. Mr Trump may be gone but Trumpism is likely to linger on in the corridors of US legislative chambers for months to come.
In our more recent December 14th note, we also wrote: “With Electoral College members due to vote in the coming days and likely to officially declare Mr Biden the winner of the US presidential race, anxieties about a contentious transition of government are once again being elevated as the outgoing president remains defiant, refusing to concede defeat and continuing his claim of election fraud. The potential for civil unrest, possible adoption of more draconian foreign policy measures against China and generally opting for scorched earth tactics that could impact the stock market in the latter days of the administration, are some of the short-term concerns investors seem to be grappling with.” However, storming of the Capitol Building by Trump supporters was something that not even we could have imagined.
Immediate dangers of US policy missteps have faded
To be sure, there is still high probability for more civil unrest, even an armed conflict ahead of Mr Biden’s inauguration as it has been warned by Twitter. But we think the market will be taking such events in its stride. With many of Trump’s governing team resigning and bipartisan calls for invoking the 25th amendment to remove him from office or impeaching him getting louder, the besieged president has never looked as isolated, especially with his Twitter account permanently closed. Also, the significance of the impeachment proceedings this time is that under the US constitution, the president can no longer pardon himself before leaving office, leaving Trump vulnerable to all sorts of charges.
Given the above, we now think the dangers of a major foreign policy or military action misstep towards the likes of China or Iran, in an attempt to hinder future progress by the Biden Administration has now greatly diminished as the current president has been put under a careful watch and he would not want to be seen as doing anything to put himself at greater jeopardy. Indeed, with Biden’s government promising more fiscal stimulus, better funded and more organised Covid vaccination programs and less combative foreign policies, we continue to think that global stock markets look poised to be heading higher, led mainly by cyclical names.
Renewed spat between Japan and South Korea should be watched carefully
Relations between Japan and South Korea have come under strain again after a South Korean court last week ordered the Japanese government to compensate twelve former wartime comfort women. The ruling was called completely unacceptable by the Japanese Prime Minister, Mr Suga and could once again open a major rift that the previous ultra-nationalistic Japan leader, Mr. Abe was spearheading in 2019.
At that time, Abe’s government, emboldened by Trump’s tough trade policies and his open dislike for the South Korean leader, removed Korea from a list of trusted nations followed by introducing exports licence requirements for supplies of materials vital for production of semiconductors and display panels. South Korea in turn removed Japan from its list of most-trusted trading partners. However, with Trump and Abe having both gone, we hope cooler heads will now prevail. This is especially so as Mr Biden will be looking to forge a closer relationship between America’s key allies in Asia, to help put up a steely united front against both China and North Korea.
Nevertheless, with South Korean semiconductor and display makers among the biggest customers of Japan’s top technology upstream firms, potentially restricting export licences at the time when supplies are generally very tight could prove highly disruptive to the global supply chain and thus, the events should be watched carefully. With most Japanese technology stocks having performed strongly, in line with the sector names globally, we have prepared a short list of key Japanese stocks as potential short sell hedge candidates should the relations between the two nations deteriorate further.