Democrats' capture of the House could drive down investment into the US, strategist says

  • Democrats are set to take control of the U.S. House of Representatives.
  • That development may lead some investors to see investing in the United States as a less appealing proposition, according to one strategist.
  • "We may see people rethinking the U.S. as their main investment, you know, location," said Mark Jolley, global strategist at CCB International Securities. "It could be quite disruptive."

As Democrats are set to take control of the U.S. House of Representatives, some investors may find investing in the United States a less appealing proposition, according to one strategist.

The liberal party appeared to have won control of Congress's lower chamber during Tuesday's election, marking a triumph that gives the Democrats real levers of power to check President Donald Trump and GOP lawmakers. Experts told CNBC that markets will be looking to see how if at all the elections could affect America's foreign policy — particularly regarding the trade war with China — but shifts to the nation's domestic policy will also be of interest to investors around the world.

Mark Jolley, global strategist at CCB International Securities, told CNBC as polls were closing that a Democratic capture of the House could disrupt global investment patterns because some investors fear the consequences of a more divided U.S. political environment.

People are afraid, he said, that a Democrat-controlled House would mean more gridlock in Washington, and could therefore lead global investors to rethink their prioritization of the U.S. as their main investment option.

Many political analysts have projected that such gridlock could arise from the Democrats blocking Republican attempts to cut taxes and roll back Obama-era health care programs. Still, the shift in power could also open the door to cooperation on reducing drug prices or improving infrastructure.

Jolley characterized bipartisan relations during the first years of Trump's presidency as "ugly," and said Tuesday's development will lead some to wonder "how much worse things will get."

Brian Snyder | Reuters

"We may see people rethinking the U.S. as their main investment, you know, location," he added. "It could be quite disruptive."

The strategist described the current investment environment as one in which "people are over-invested in the U.S. economy," "overweight" on U.S. Treasurys and the dollar is "over-owned." Therefore, investors should look out for market responses in the stock, bond and currency markets, Jolley added.

In fact, he predicted that the market response to the Democrats taking the House would be "much less positive than we've seen in former midterm elections."

The Democrats leveraged voter enthusiasm and staggering fundraising to a projected net gain of the 23 GOP-held seats needed to take a majority in the chamber. The victory will put Democrats in control of the House for the first time since 2010 and likely return House Minority Leader Nancy Pelosi to the office of speaker.

—CNBC's Jacob Pramuk contributed to this report.