Financial shares lost ground as any hopes the Volcker rule, part of the Dodd-Frank reforms, curbing proprietary trading by Wall Street banks in securities and derivatives, would be repealed by Republican challenger Mitt Romney, died. Barclays shares fell 2.8 per cent, Royal Bank of Scotland 2.7 per cent and HSBC 2.2 per cent.
However, PwC financial services leader Kevin Burrowes says the result at least provided certainty for financial firms. “They can now get on with implementing EU and US reforms on an integrated basis, knowing they have a clear direction from global regulators,” he said.
Aerospace and defence firms also suffered, with BAE Systems down 1.3 per cent, hurt by the expectation that defense budgets would continue to drift downwards.
Romney had pledged to increase the funding for military budgets, but analysts yesterday estimated Obama’s second four years in office could see as much as $20bn slashed from defense spending.
But there were also winners from Obama’s victory.
Mining shares rose in relief that Romney, who had said he would remove Ben Bernanke as Federal Reserve chief, lost; gold investors also gained on fears of more QE. Bernanke, made clear in September that under his leadership the Fed would maintain low interest rates, and continue with quantitative easing until the economy is back on track, helping to ensure continuing high demand for metals.
Education-orientated firms also benefited, with UK-listed publisher Pearson which closed flat yesterday, beating the 1.6 per cent drop in the FTSE 100, as investors assumed its North American education business would benefit from continued federal funding for school textbooks.
However, Liberum analyst Ian Whittaker reiterated his “sell” rating yesterday, warning that the Republicans’ continued hold on the House of Representatives meant significant extra funding was unlikely to be signed off.