Markets would have preferred Romney victory: Julius Baer

President Barack Obama won re-election to a second term in the White House, beating Republican challenger Mitt Romney. Speaking to CNBC-TV18 about the impact of the much hyped Presidential election results, Mark Shirreff Matthews, head of Asia research, Julius Baer said that the market would have preferred Romney's win since he is perceived as free-willing capitalist. However, Obama's win should not surprise the markets either.

Below is an edited transcript of Julius Baer's interview on CNBC-TV18. Q: What is your reaction on President Obama getting re-elected this time around? How do you see equity markets react?
A: It shows the Republican Party and the US really need to reinvent itself and do a gut check after this election. The demographics of US have changed such that the former strongholds of the Republican Party, the rocky mountain streets and the south-east of the United States, because of the growing population no longer swing so heavily republican as they did before.
The market would have preferred Romney because it views him as a more free-willing capitalist. But by the end of the campaign, I could see no difference in the economic platforms of the two candidates. Even if they position themselves, one to the right and other to the left, the differences was very small when it comes to the economy. The market may retrace a little bit because it would have preferred Romney, but the polls were showing that Obama was going to win, so we shouldn't be much surprised. Q: Do you think markets may just move on, beyond the first day reaction? Do you feel this is not the determining or defining event for the market, it is done and dusted and market should just move on?
A: The immediate issue we will face is the fiscal cliff. People are a little concerned about it because if there was a Republican in the White House, he could have broken that grid lock which exists between the White House and Congress. But I feel like politicians at the end of the day, they neither want to lose votes nor popularity. If they do not address this fiscal cliff issue, they will be blamed for it by the populists. So, for me the fiscal cliff is a small concern, but it does immediately pop-up now since elections are out of the way. Q: Does the possibility of S&P500 moving into negative terrain come in by the time December comes up because, once the fiscal cliff comes into play, there will be increase in taxes, on dividends, on capital gains. Do you foresee an event where the markets move lower as we head into the fiscal cliff by the end of the year?
A: I suppose that we did so well in September and October that people might look to take some profits. But, underlying all the political noise is a recovering economy in the United States. Could it recover faster under Romney? Arguably yes, the business community would have felt more confident to invest, consumers would have felt more confident to consume.
Nevertheless, we did the last four years with the Democrat and we saw a slow recovery. We will continue to recover and that is the most important thing. It could be and should be faster, but is still happening nonetheless. Q: So even if there is a mild correction today or in the short-term, do you think it will be short-lived? Do you see a major 5 percent plus correction in the US market now?
A: Five percent isn't really major in the grand scheme of things, so I wouldn't rule it out. The US economy is recovering and that is underpinning the good corporate earnings we have been seeing. In the third quarter, there was some weakness in the revenues due to the stronger dollar which pushed down overseas contributions for the big global companies. There was also some weakness in the numbers coming from Europe and Asia for big multinationals.
Now the Chinese economy is stabilizing. Europe is still in a recession, you can't deny that, but the crisis seems to have abated. The US economy is still on slow and on gradual recovery. Bernanke probably is feeling a lot safer now that Obama is the president again. So it still seems to be a decent environment for risk assets.

Q: With the money managers that you interact with, what has the takeaway been with respect to change in tactical approach towards the Indian markets? Will any more funds come our way?
A: Generally, there has been a pretty sizeable shift into emerging market stocks and bonds over the last month. It is like people are trying to chase markets which have lagged not so much in India but China in particular. Now the economy looks like it is bottoming out. Because people were under allocated to emerging markets, they went into them over the last month.