Investors looking for clues to the impact of the US presidential election in 2004 should assume that the biggest policy change if the Democrats win would be a reversal of the Bush administration tax cuts, say executives at Principal Financial Group.
On Friday, Principal held a seminar in Hong Kong for local financial institutions that looked at political and economic prospects impacting the US election and how Asian investors should position themselves.
Stuart Brahs, vice president for Principal's federal government relations in Washington, DC, says George W. Bush's re-election was probable, in part because the Democratic party had not found a credible standard-bearer, but predicts that the Republicans would lose their slim majority in the Senate by one seat.
That's despite some pretty difficult economic figures - record budget and trade deficits, nine million unemployed Americans and falling median household incomes, not to mention a $87 billion tab for Iraq and Afghanistan.
Nonetheless, those tax cuts have helped stimulate a recovery, and Jim McCaughan, executive vice president and global head of asset management in New York, predicts 5% growth in US GDP in 2004. Although 2002-03 was hard on companies, consumers felt no recession thanks to mortgage refinancing, while the equities markets are now re-establishing fundamentals. Still-low asset prices and productivity gains are setting the stage for growth without inflation. "Economic recovery leads to good equity markets," McCaughan says.
The US consumer-led growth remains the only bright spot on the global stage, as Germany and Japan seem unable to get their motors running again. The other exception, of course, is China.
The executives dismiss the current pressure by Washington on China to revalue and liberalize its currency as "political posturing of the worst kind". Says Brahs: "It's just noise." He and McCoughan recognize protectionism as a major political risk in the US, and agree that China should not change its currency regime, as it would destabilize its growth path.
Brahs is optimistic that the Bush administration will fend off efforts to place tariffs on Chinese imports to the US. He notes that Bush has met his Chinese counterparts, either Jiang Zemin or Hu Jintao, more times so far than any other US president, and that the US views China as an important ally in its war against terrorism.
McCoughan adds that most Chinese exports to the US are components, often sold by US affiliates or partners, and that there are plenty of American businesses that will fight any attempt to impose trade barriers.
Principal serves more US employers 401(k) pension plans than any other financial institution, and it is also a master trustee to the Hong Kong Mandatory Provident Fund scheme. It has $128 billion in global assets under management.