Jakarta. As the US presidential election on November 5 nears, analysts express a preference for Kamala Harris over Donald Trump, citing her economic policies as more conducive to stability and growth in global financial markets, particularly in Indonesia.

Helmy Kristanto, an analyst at BRI Danareksa Sekuritas, said that the contrasting economic visions of the candidates could lead to significant shifts in US economic policy.

Trump seeks to uphold the tax cuts from the Tax Cut and Jobs Act of 2017, proposing a reduction in the corporate tax rate to 15 percent and a 10 percent blanket tariff on imports, particularly targeting China. In contrast, Harris aims to alleviate costs for American families by maintaining tax cuts for those earning under $400,000, while raising the corporate tax rate to 28 percent and expanding tax credits to address income inequality.

Recent polling suggests that a Republican sweep is the most likely outcome, with Trump potentially winning the presidency alongside a Republican-majority Congress. Other scenarios include a Harris victory with a Republican-controlled Congress, a Trump win with Democratic congressional control, or a less likely full Democratic sweep.

"A Republican sweep could prompt market reactions similar to those observed after the 2016 election, potentially leading to increases in US Treasury yields, a stronger dollar, and boosts to US equity markets. However, the effects may be tempered by pre-election market adjustments," Helmy said on Monday.

Increased US Treasury yields could elevate Indonesian government bond yields, increasing debt servicing costs and limiting fiscal flexibility. "This risk is heightened as Indonesia's government bond maturities peak in the next two years," he said.

In a divided government scenario, where one party controls the presidency and the other Congress, policy extremes may be moderated. For instance, Congress could temper Trump’s tariffs or Harris's corporate tax proposals. "Nonetheless, both candidates' populist policies, such as tax cuts, pose a risk of widening the budget deficit without new revenue sources," he added.

While a full Democratic sweep is considered unlikely, it could foster policy stability with more predictable fiscal measures, potentially supporting the current cycle of Federal Reserve rate cuts. According to Helmy, this stability may benefit emerging markets like Indonesia by providing a more stable yield environment for government bonds and the Indonesian rupiah.

"In the short term, a Republican sweep could lift US equity markets but might create volatility in Indonesia, particularly if Trump's policies pressure Indonesian exports, given that the US is Indonesia's largest trade surplus partner," he said, adding that broad tariffs could force Indonesian producers to lower prices to remain competitive.

Conversely, a Democratic victory could lead to stability and predictability in US fiscal measures, benefiting emerging markets like Indonesia by supporting a stable inflation outlook and encouraging further Fed rate cuts, which may attract capital flows to Indonesia, where yields are comparatively higher.

Regardless of the election outcome, geopolitical tensions and trade war risks are expected to persist. Both candidates support measures to contain China's influence, and tariffs are likely to continue.

"The Inflation Reduction Act (IRA), introduced by Biden in 2022, which allows Chinese companies to establish manufacturing facilities in the US through joint ventures, remains contentious. Trump may allow the IRA to expire in 2025, while Harris might amend it to limit benefits for Chinese companies," Helmy explained.

Myrdal Gunarto, a global markets economist at Maybank Indonesia, suggests that a Harris victory could lead to lower market volatility and sustained economic growth, aligning more closely with trends initiated by the Biden administration.

However, Trump's programs aimed at reducing credit costs and promoting energy independence could result in lower oil prices. Yet, market concerns linger over Trump's fiscal expansion policies, protectionist stances on immigration, foreign goods, and electric vehicle policies.

“From a business perspective, it seems that more people prefer Kamala Harris to win,” he told Investor Daily TV on Monday.

Pasardana economist Hans Kwee said that the stock market is adopting a "wait and see" approach ahead of the US election. He noted that each presidential candidate could significantly affect Indonesia's stock market movements.

"This year, the outcome is unpredictable, and there is a possibility of a Trump victory. If that happens, the Indonesian capital market may experience a correction. Therefore, market players are exercising caution," Kwee said.

Kwee further explained that market participants are closely monitoring the potential for the Federal Reserve to cut interest rates. There is growing confidence that the Fed will reduce rates at the upcoming FOMC meeting in November, though the extent of the cut may not match September's reduction.

"The lingering question is whether a November cut will be followed by further reductions in December, which could be influenced by the election results," he added.

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