US election fears exaggerated

While some investors and commentators fear the worst about the November 8 US Presidential election, others believe irrespective of who wins, the result could create a buying opportunity.

Should Donald Trump prevail, Ryan Paterson, research analyst at Thesis Asset Management, says Trump’s policies could be “quite positive” for the US economy and businesses.

“Reducing corporation tax rates to 15% and unleashing massive infrastructure spend would benefit company earnings and prospects. Coupled with lighter regulation, this should prove supportive to equity markets,” he said.

“In addition, the US offers better economic growth, rising relative earnings and more favourable sector composition, with higher market weightings in technology and healthcare, along with a healthier financial sector.”

Conversely, Paterson sees a victory for Hilary Clinton resulting in a favourable outcome for risk assets, as investors “breathe a collective sigh of relief”. Although, Clinton’s stances against private healthcare firms could damage the sector. 

“We have already seen this weigh on pharmaceuticals, and if the Democrats end up taking control of the White House, Senate and the House of Representatives, there may be pressure on Clinton to push forward further reform and restrictions on the private sector.”

Others predict it’ll be business as usual in respect of US interest rates, as the Federal Reserve is in no position to raise them.

Ken Leech, chief investment officer at Western Asset Management and lead manager of the firm’s Macro Opportunities Bond fund, “strongly resists” the notion that the existing monetary framework will change in the foreseeable future.

“The Federal Reserve made a dovish pivot in the spring, key to underpinning confidence in financial markets and the global economy, but we do not see [it] accelerating this process meaningfully.”

He added that while the Fed would ideally prefer to inch up interest rates if conditions allow, low growth and low inflation globally meant its scope to do so was limited.

“While the US consumer is fine and carrying the load, manufacturing is unbelievably in the doldrums. We continue to believe that support from central banks – including the Fed – will stay in place.”

On Monday, analysis from ETF provider Source indicated US presidential elections have only a limited impact on US markets, with bonds, equities and the dollar remaining in a tight range in the two months before the last 11 elections, and all of them gaining in the six months after.

Even in the three elections where the candidates were within five percentage points of each other in the polls beforehand – 2000, 2008 and 2012 – there was still little impact on markets despite the heightened uncertainty.

©2016 funds europe



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