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Joe Biden: where 14 AMs stand on equities and bonds

Fourteen asset management experts tell us what a Joe Biden win actually means for equities and bonds.

Chong Jiun Yeh, UOB Asset Management

CIO

We expect equities to continue to rally, partly due to the relief that the uncertainties around the election are largely over.  While Biden has won the presidency, the Democrats may not secure control of Congress, with a few Senate seats yet to be decided.

A divided government, with no party having control over both the White House and Congress, is likely to be perceived as market friendly, because markets have performed well under divided governments in the past.

However, the odds of a significant stimulus package have declined with a mixed Congress. That said, the risk of rising yields is much lower, which is positive for the bond market.

We continue to favour balanced income strategies. We are bullish and remain overweight on equities. We are also overweight on fixed income, with a focus on investment grade credits and a slight overweight on high-yield bonds.

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Chong Jiun Yeh, UOB Asset Management

CIO

We expect equities to continue to rally, partly due to the relief that the uncertainties around the election are largely over.  While Biden has won the presidency, the Democrats may not secure control of Congress, with a few Senate seats yet to be decided.

A divided government, with no party having control over both the White House and Congress, is likely to be perceived as market friendly, because markets have performed well under divided governments in the past.

However, the odds of a significant stimulus package have declined with a mixed Congress. That said, the risk of rising yields is much lower, which is positive for the bond market.

We continue to favour balanced income strategies. We are bullish and remain overweight on equities. We are also overweight on fixed income, with a focus on investment grade credits and a slight overweight on high-yield bonds.

Shaniel Ramjee, Pictet Asset Management

Senior investment manager, international multi-asset team

A Biden win, with a split congress suggests more moderate policies, which includes less aggressive fiscal policies. Hence the Fed will have to keep momentary policy supportive and Powell suggested so after the meeting.

PE multiples remain supported, as bond yields are suppressed. Sector Rotation is less likely in the near term because industry specific policies less impactful in the near term. 

Looser monetary will keep pressure on the US dollar, while lower global risk premia from policy transparency will benefit Asia equities.

David Chao, Invesco

Global market strategist, Asia Pacific ex-Japan

From an investment view, I think we will see a rotation out of safe havens such as treasuries and the USD into more risk assets such as equities and EM as the political overhang is removed.

Already we are seeing the VIX (volatility index) start to come off, global risk sentiment in general is improving with the election overhang now passing and we’ve recently seen global equities rally 7%. I think this rally has legs especially in Asia Pacific markets.

Paul O’Connor, Janus Henderson

Head of multi-asset investments

The Biden victory could be a game changer for US politics, with significant policy implications for financial markets to digest. We expect higher corporate taxes, greater regulatory intrusion in many industries and a sizeable redistributory fiscal stimulus.

The more the new administration moves in this direction, the greater would be the likelihood of a rotation away from liquidity-sensitive assets to more cyclical assets and from growth stocks towards value themes.

Daniel Gerard, State Street Global Markets

Senior multi asset strategist

Low interest rates, low inflation, and supportive public policy will be beneficial for growth equities, especially the consumer, technology and areas of health care.

The same factors driving growth equities higher will mean a challenging environment persists for value spectrum of equities like financials, real estate and traditional energy.

Bonds will likely remain stable yet expose investors to asymmetrical risk to investors on the downside with rates near historical lows and spreads compressed.

Kerry Craig, JP Morgan Asset Management

Global market strategist

With Joe Biden being declared the US president-elect, markets are starting the week on a stronger footing as risk around the election fades.

Markets are also taking their positive lead from the connotation that a divided Congress may mean a stalemate on the policy front.

With the BOE over delivering on a new QE package, the ECB laying the ground work for further easing and a Fed poised to strike if needed, there is little chance that monetary policy support will underwhelm market expectations or indeed let government bond yields rise that far.

Frank Tsui, Value Partners

Senior fund manager

The attentions have now shifted to the votes on the Senate and the House. Democrats are expected to get the House but it is not so certain when it comes to the Senate.

If Democrats take control of the US Senate, they will be more likely to take a multilateral approach to global trade, which would benefit the RMB and emerging market assets, especially China-related assets. Technology and other cyclical sectors are likely to outperform.

There will be a blue wave scenario that easier fiscal policy is likely to support US growth in the near term, but may induce the Fed to push forward rate hikes and drive up long-dated yields, which may cause Dollar resiliency and be a potential headwind for EM assets. 

That corporate taxes increase in medium term could also be another headwind to US equities. That being said, defensive and rate-sensitive may underperform.

Sean Taylor, DWS

Group’s CIO Apac & head of emerging market equities

We expect yields on 10-year US Treasuries to remain range bound below 1%. That supports our view that interest rates will remain low for longer. Corporate-credit markets in both the US and Europe have been resilient, but further political uncertainty could potentially create opportunities.

We believe that emerging-markets bonds are likely to be the most volatile. We would consider widening spreads as attractive entry points, though selection is key.

Under equities, a Biden administration might undo many de-regulatory steps, but overall, we feel a narrow win might encourage Biden’s centrist instincts, not least with regard to the energy sector. Sectors which should outperform are renewable energy and infrastructure.

Focus could be on domestic economy that was affected by Covid, while foreign policies to take a back seat for the next few months, and is expected to be more predictable and less radical. International equity to outperform US equities.

Paul Sandhu, BNP Paribas Asset Management

Head of multi-asset quant solutions, Asia Pacific

Ultimately, we should expect lower interest rates overall – which will mean that lending is less expensive so I see this positive for the IPO, small cap market.  Which means that there will be alpha opportunities. 

Investors will be buying opportunistically and I see this happening more in the tech, digital, and energy-transition sectors in the US, and substantial inflows into Asia as well.

On the side of bonds, we will likely see a slight increase in the slope of the yield curve and credit spreads widening slightly as a risk-on trade continues as stimulus and infrastructure spending moves along.

But overall bonds are going to see very little volatility as spreads are quite tight and some minor uncertainties will have some income focused investors sitting tight with lower investment grade and high yield bonds.

Robert St Clair, Fullerton Fund Management

Strategist

Risk-assets have reacted very positively to the Biden ‘divided-government’ outcome.

US equities have already rallied significantly, as under President Biden fiscal supports over time will likely be significant, and US foreign policy could be more dovish. Historically, a Democrat President, with split legislative power, can result in a fiscal-stimulus ‘sweet-spot’ that is positive for equity market performance.

Pressures are likely to continue to build for US 10y yields to slowly drift higher over time, from stronger macro data, higher equities, and rising inflation expectations.  

US dollar strength is likely to fade over time as the wider US current account deficit drives the dollar down.

Jeff Burger, BNY Mellon Investment Management

Senior portfolio manager

Under a Biden presidency, infrastructure spend may actually pick up, funded largely by the sale of municipal bonds. Here, we believe there could be an emphasis on ‘green’ and environmentally sensitive projects as a way of providing economic stimulus.

There is also the prospect of a push by Democrats to raise corporate taxes. If successful, this could also spark inflows into municipal bonds, given the tax exemptions they offer investors.

Paul Benson, BNY Mellon Investment Management

Head of fixed income efficient beta

The bigger story is that Covid-19 has permanently changed the structure of the economy, and inasmuch as you have industry winners and losers. There will be individual companies within sectors that will adapt well and ones that won’t.

This may manifest itself in terms of greater volatility, in particular from a ratings migration perspective, particularly given that we now have a larger amount of BBB as well as BB outstanding bonds than ever before in history, both in absolute terms as well as percent of market value terms.

This is all good news for the alpha potential within fallen angels.

Simon Weston, Jim Veneau, AXA Investment Managers

Senior portfolio manager, head of Asian fixed income

We think the result is a Goldilocks outcome overall for Asian investors – not too hot, not too cold, but just right. It’s also, “safe to go back into the water.” 

Equity markets have generally welcomed the US election results:
Lack of ‘blue wave’ and a potential deadlock in Congress could mean some Democrat policies, perceived to be market-negative, will be more difficult to be enacted, including tax rises or more regulation.

Lack of ‘blue wave’ also lowers the likelihood of massive stimulus package with potentially inflationary consequences. We saw market had previously begun to position for this, with rotation into value and cyclicals, and pick up in bond yields.

Christiaan Tuntono, AllianzGI

Senior economist, Asia Pacific

When the global business cycle picks up, emerging market growth tends to outpace US and developed market growth. When EM growth accelerates, its economic fundamental also improves, attracting more equity investment inflows.

There is a caveat to such observation, however. The emerging economy would need to recover from the impact of Covid-19 to gain investors’ confidence. We expect Asia, led by North Asia, is likely to recover from the impact of Covid-19 ahead of other developed and emerging economies in the world.

EM credit spreads are expected to tighten during period of USD weakness. We maintain our view that investment opportunities lie around good-quality corporate credit in Asia.

With the very strong stimulus responses from the Fed and the resumption of growth in Asia we think the risk of seeing systemic credit events in Asia should have much reduced. This may prompt the sovereign, quasi-sovereign and corporate credit spreads to tighten in the aftermath of the risk-aversion flows.

Nuveen

Global investment committee

On equities and credits, renewable energy, auto electrification, infrastructure and firms with large international exposure may benefit under Biden policies, given expected shifts in regulatory and trade policy.

For fixed income, new fiscal stimulus, if it happens, would support the economy and sustain the reflation trade, leading to a weaker US dollar and TIPS outperformance. Emerging markets debt could benefit from less tariff-related uncertainty and appreciating currencies.

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