Page 22 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY

aggressive militarily on the question of Taiwan, China’s internal issues such as inflation—has afforded the current President
stability will be a factor to monitor as an input on China’s political some breathing room when considering the path forward. If
decision making. While it remains a tail risk, mounting domestic Biden ultimately does not lead the ticket, we expect Vice Presi-
challenges at home could push China’s leaders to become more dent Kamala Harris, a current Democratic governor (California’s
assertive abroad as a means of redirecting attention from internal Newsom, Michigan’s Whitmer), or high-profile cabinet secre-
issues. While the overall trajectory is expected to flatten and stabi- taries (such as Transportation Secretary Pete Buttigieg) would
lise, pressure points should be expected in the year ahead that round out the (early) top-tier of candidates. Overall, there is an
could test the relationship and elevate market risks. With China’s eternity between now and the next election in political terms. If
Xi expected to be hosted by Biden in Washington around the recent election cycles are a guide, expect curveballs ahead that
fourth quarter of 2023, we generally expect the year-end period to challenge early conventional wisdom.
end on a more positive note in terms of U.S./China relations
before the 2024 campaign kicks into gear.
KEY TAKEAWAYS:
2024 ELECTION PREVIEW • We view the outcome of the 2022 midterm elec-
Eyes have already turned to the 2024 presidential election after tion as a positive result for the market. Markets
the November midterms, with several prominent names in the have historically favoured split government—as it
running to lead both parties. However, at this stage it is hard to reduces policy uncertainty. Additionally, we would
predict who will emerge as a front-runner and we would caution highlight that since 1946, the S&P 500 has been
that conventional wisdom regarding presidential candidacies positive 12 months following a midterm election.
shortly post-midterm is often wrong. For the Republican presi- • In the 2023 agenda, we would focus on three things:
dential nomination, the primary season will likely be highly must-pass legislation; potential areas of bipartisan
competitive, with former President Trump’s announcement of compromise; and Senate confirmations.
his candidacy and the expectation that many other Republicans
may seek the Republican nomination, including Florida Gov- • The debt limit, China, antitrust, cryptocurrency,
ernor Ron DeSantis (who emerged from the 2022 election cycle and oversight will likely feature as core legislative
with a strong re-election). For the Democratic nomination, ques- themes in 2023. China policy will serve as a key
tions around whether Biden will seek a second term remain area for bipartisan compromise with a slight tilt
unanswered. The Democrats’ stronger-than-expected showing toward more hawkish policy decisions.
during the midterm elections—which was in part viewed as a ref-
erendum on President Biden’s approach on key domestic policy

ANTITRUST

CHINA CRYPTO-
CURRENCY

DEBT LIMIT OVERSIGHT

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