Markets 'breathing sigh of relief' as fears over U.S. tax hikes fade: Rosenberg

The uncertainty around the U.S. election outcome didn’t seem to bother investors Wednesday, as stocks surged for the third straight day.

Prominent Bay Street economist David Rosenberg said investors should be preparing for a Joe Biden victory, but with a split Congress likely, much of Biden’s campaign promises to raise taxes won't materialize in a meaningful way.

“Right now, you don’t have the blue wave – that’s one thing we know with certainty,” the chief economist and strategist at Rosenberg Research said in a television interview.

“I think in some sense, the markets are breathing a sigh of relief that we’re not going to be getting those tax increases.”

Biden’s campaign platform included a slew of pledges to raise taxes for the country’s wealthiest, including a hike in capital gains taxes. Rosenberg said that was a primary driver of the recent U.S. technology stock selloff as investors wanted to realize their gains before potentially higher taxes came into effect.

“What’s happening is that risk is being obliterated because the Senate is (likely) going to stay Republican, so there are no tax increases coming through and these investors are buying those stocks back,” Rosenberg said.

However, with growth stock valuations extremely high and uncertainty around value stock earnings, one area where Rosenberg sees long-term investing opportunities is outside the U.S.

“The irony of ironies is China – the epicentre of the coronavirus – is the only country in the world that’s going to have positive growth next year and probably accelerate to over eight per cent next year,” he said. “Within the next 10 years, I reckon China’s economy will be bigger than America’s.”

“Focus on how you can invest in China.”