The race for the White House continues as Harris and Trump await election results in the highly anticipated 2024 political event. Trump and Harris each need at least 270 electoral votes to win the presidency. At the time of publishing this interview, Former President Donald Trump has 267 electoral votes and Harris has 224 electoral votes, according to AP. The US stock market futures are in green before the market opens on Wednesday, November 6.

The US election results are expected to have a global impact, prompting global investors to seek investment solutions. In an exclusive interview with Financial Express Online, Viram Shah, CEO, Vested Finance shares his view on the road ahead for investors.

How do you see US stocks performing around American elections?

This week brings two major events likely to influence markets: the U.S. presidential election and the Federal Reserve’s monetary policy meeting. Elections naturally introduce uncertainty, often leading to short-term market volatility. Historically, markets see heightened fluctuations leading up to the election, but volatility tends to ease once results are confirmed. Regardless of who wins, markets typically shift focus back to fundamentals shortly after.

Adding to this dynamic, the Federal Reserve’s rate decision could also sway markets, especially as investors look for guidance on inflation control and economic stability. Fed policy often has a more sustained influence on market direction than election outcomes. Since 1984, only the 2000 election year ended with lower stock performance 12 months later.

On average, stocks have tended to rise a year after elections, underscoring that while elections can create short-term movement, fundamentals like Fed policy, corporate earnings, and broader economic conditions remain the primary long-term drivers.

For investors, the key is to stay focused on fundamentals rather than reacting to short-term political shifts.

Given the U.S. market’s current dynamics, which sectors do you believe present the most compelling opportunities for Indian investors seeking global diversification?

As Indian investors look to diversify globally, the U.S. market offers some exciting opportunities, particularly in technology.  Top tech companies in the USA are leading the charge in AI, and with tech expected to see mid-teens growth through 2025, it’s hard to ignore their potential.

But it’s not just tech—sectors like healthcare, renewable energy, and consumer discretionary are also ripe for investment. The U.S. stock market boasts faster-growing industries, a higher reinvestment rate, and greater liquidity, which helps reduce risk.

Let’s not forget the importance of semiconductors, where many top players are U.S.-based. This makes the U.S. market a strategic choice, especially since the economy is robust and increasingly attractive to foreign companies seeking listings here.

How have been the results of the ‘Magnificent Seven’ firms and what are the key takeaways for investors?

The Q3 2024 earnings season has brought mixed results from the ‘Magnificent Seven’ tech giants, revealing a complex landscape. Alphabet stands out with strong growth fueled by its investments in AI and a thriving cloud business. Meanwhile, Microsoft and Meta, despite surpassing estimates, experienced slower user growth and issued cautious revenue guidance. Apple encountered challenges with a notable year-on-year income drop, largely due to tax charges, but Amazon’s robust performance offered a counterbalance.

As the focus shifts to capital investments, the sector’s spending on AI is projected to exceed $200 billion this year, raising expectations about future returns. Microsoft and Google, in particular, are seeing encouraging signs from their cloud divisions, which are benefiting from the generative AI push. However, caution persists as Microsoft warned of a potential slowdown in cloud growth due to supply constraints.

Overall, while the AI investments and their impact are still unfolding, the strong performance of cloud services reflects a promising trend that could enhance profitability in the long term. Investors remain attentive, seeking clarity on how these significant expenditures will translate into tangible returns in the competitive tech landscape.

How do you see the economic situation in China affecting global investment trends, particularly for Indian investors looking at Asia-Pacific opportunities?

In October, a series of stimulus measures from China prompted foreign institutional investors (FIIs) to reassess their allocations in Chinese markets, resulting in a sharp rally. This shift forced emerging market (EM) funds, which had been underweight in China, to rebalance rapidly to prevent underperformance. Consequently, Indian markets faced significant sell-offs, with FIIs recording an unprecedented outflow of $12 billion in a single month, surpassing the previous record from March 2020.

Currently, Indian market valuations appear overly optimistic in light of slowing corporate earnings growth, persistent inflation, and high interest rates. Recent earnings reports across various sectors have disappointed, further contributing to sustained FII outflows. While Chinese stocks currently trade at a discount compared to other benchmarks, the effectiveness of the stimulus measures and the sustainability of the rally hinge on the Chinese government’s ability to resolve structural economic issues

What strategies would you suggest for investors choosing between U.S. and Chinese equities, considering the ongoing economic and geopolitical tensions?

Chinese stocks are currently available at significant discounts, yet investing in it is risky. Heightened Sino-U.S. political tensions and a cooling economy have led many asset managers to reduce or eliminate their Chinese investments. 

China’s economic recovery has been tepid, as evident from the disappointing GDP growth rates and dwindling consumer confidence. Additionally, the strict regulatory environment, especially in sectors like technology and education, has further complicated the investment landscape. These factors contribute to a climate where volatility reigns, making Chinese stocks less appealing.

For those with a high risk appetite who still consider allocating to Chinese funds or stocks, it’s prudent to restrict that exposure to no more than 10% of your overall portfolio. This allocation allows for potential growth without overly compromising your financial stability.

While geographical diversification is typically a sound strategy, it may be wiser to prioritize more stable and mature markets, like the U.S.A notable option for international exposure is the Nasdaq-100, which consists of companies with a strong global presence. This can help you achieve diversification while minimizing the risks associated with investing in China right now.

With recent fluctuations in the U.S. market, how should investors balance short-term risks with long-term opportunities in sectors like healthcare, finance, and tech?

There is a growing concern about a potential recession, driven by weak jobs data that has raised red flags. While the economy isn’t officially in recession yet, the Fed has started an easing cycle.

In addition to economic concerns, there’s rising skepticism around the profitability of AI investments. The recent earnings season for tech companies deemed “AI winners” fell short of lofty expectations, contributing to a lackluster performance for tech-heavy indices like the Nasdaq 100.

This underscores the need for caution in the tech sector, where premium valuations may not be justified.

Moreover, uncertainty surrounding the upcoming U.S. elections adds another layer of complexity. As market perceptions shift, investors may see lower valuations reflecting this unpredictability.

Volatility is an inherent part of investing, and while it may feel unsettling, it presents valuable opportunities for proactive investors. Despite a recent pullback in the S&P 500, the index has still returned nearly 30% this year. 

Rather than panicking, investors should use this volatility to revisit their financial plans, ensuring goals align with long-term objectives. Creating a comprehensive plan can help mitigate anxiety during turbulent times. Rebalancing portfolios is also key, as shifts in asset performance may require adjustments to maintain target allocations. Dips can even be leveraged to increase equity exposure, as historical data suggests the S&P 500 typically rebounds significantly after pullbacks.

The key is maintaining perspective and making strategic, not impulsive, decisions. By doing so, investors can weather volatility and capitalize on the valuable opportunities it presents, even amidst current economic and political uncertainties.