CLSA: Democrats' Sweeping Victory in U.S. Midterm Elections Expected to Be Positive for Bonds

CLSA released a research report stating that Democrats achieved a historic sweeping victory in the U.S. midterm elections, winning the House, the Senate, and a majority of governorships, which the firm believes reflects voters' strong dissatisfaction with Trump's second-term policies. A Democratic win in the House was already within market expectations, but 7 Senate seats flipping to the Democrats still exceeded expectations, which will hinder the president's policy agenda over the next two years and could trigger a series of congressional investigations. The firm noted that although Asian markets initially showed concern in early trading over the election results, historical data shows that after 19 U.S. midterm elections since 1950, the S&P 500 recorded positive returns in both the subsequent 6 months and 12 months. CLSA believes that Democratic control of both chambers of Congress may help reduce additional fiscal spending and slightly narrow the fiscal deficit, and could also slightly dampen U.S. economic growth, thereby benefiting bond performance. This would help curb short-term weakness in the dollar, but would put pressure on the currencies of emerging markets with structural external deficits, such as India and Indonesia.