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US election reaction: seven experts weigh market impact

With a lot of uncertainty to markets in the coming week, seven wealth and asset management experts share their views.

Mark Haefele, UBS Global Wealth Management 

CIO

We maintain our positive medium-term view on stocks, but investors should be prepared for potential volatility until clarity emerges around the outcome.

We recommend phasing in through a set schedule to help alleviate the risk of bad timing, or using put-writing strategies to buy on dips while earning an attractive premium.

We think that the greenback is likely to weaken over the medium. Regardless of who sits in office, the extent of the US’s indebtedness is likely to come into focus.

Once the global economic recovery is underway, it’s likely to favor more “risk-taking” opportunities like the euro and the British pound, while the Swiss franc and the Japanese yen are likely to be the “superior” safe haven.

Although mega-cap tech is performing strongly today, we expect the relative laggards of 2020 to lead the next leg higher in 2021. These include US mid-caps, EM small- and mid-caps, the UK, and emerging market value stocks.

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Mark Haefele, UBS Global Wealth Management 

CIO

We maintain our positive medium-term view on stocks, but investors should be prepared for potential volatility until clarity emerges around the outcome.

We recommend phasing in through a set schedule to help alleviate the risk of bad timing, or using put-writing strategies to buy on dips while earning an attractive premium.

We think that the greenback is likely to weaken over the medium. Regardless of who sits in office, the extent of the US’s indebtedness is likely to come into focus.

Once the global economic recovery is underway, it’s likely to favor more “risk-taking” opportunities like the euro and the British pound, while the Swiss franc and the Japanese yen are likely to be the “superior” safe haven.

Although mega-cap tech is performing strongly today, we expect the relative laggards of 2020 to lead the next leg higher in 2021. These include US mid-caps, EM small- and mid-caps, the UK, and emerging market value stocks.

Anthony Raza, UOB Asset Management 

Head of multi-asset strategy

The election is going to be very close and will depend on key states that may take several days to publish their results. We think this adds a lot of uncertainty to markets in the coming week. 

This will weigh negatively on risk assets in the coming days. Equities are likely to underperform until there is clarity on the election result. 

Government bonds are likely to outperform in the near term. An additional concern is that a close election implies the democrats are unlikely to win the senate. If republicans maintain control of the senate, the odds of a significant stimulus package decrease substantially. Bond yields had been rising on the early results, but have since turned down significantly.

What is more certain is that clarity, be it a Trump or a Biden victory, will be positive for the markets. 

We think Asia’s prospects are brighter under a Biden victory as it would simultaneously mark the end of trade wars and imply more Keynesian spending. The closer-than-expected result is likely to weigh on Asian markets in the coming days or weeks. 

 

Rick Lacaille, State Street Global Advisors

Global CIO

The core investment conditions that we see for the next 12 months won’t be reversed by this volatility.

From an investment perspective high quality equities and staples are expected to do better. While areas like healthcare may still do well, particularly if congress is likely to be split and there is a need for a lot of consensus building before more radical policies take root, we should avoid outright bets, for example, on renewables or the oil and gas sector.

We should also position ourselves for a bit of a lower dollar and a little bit more in terms of medium term inflation, as we are in a deflationary environment. These are conditions which, with monetary and fiscal stimulus in place, are favourable toward equity investment in the medium term. 

Fabiana Fedeli, Robeco

Global head of fundamental equities

Until we have a clear win, and this may take until Friday, we should expect markets to be volatile and trade on election outcome news.  

There are two equity trades here: in the short term, until uncertainty on the outcome continues, we can expect investors to turn more defensive and some of those “blue sweep” trades that we have seen arising since the summer and even more so over the last few days are likely to unravel: EM equities and FX, including China, the renewables theme and cyclicals over big tech.

We are also likely to see some relief in “red tide” trade, such as oil, or Russia which is a country that is expected to incur sanctions under a Biden administration. This however, could be a very short term trade and just in place until we have some clarity on the win.  

 

David Chao, Invesco

Global market strategist, Asia Pacific ex-Japan

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

Also with the lack of a democrat sweep and its corresponding significant fiscal stimulus bazookas, I think that investors will rotate from cyclicals and value back to growth and technology stocks. Already we are seeing the VIX start to come off which should benefit emerging markets, particularly EM Asia assets.

I expect the USD to weaken from current levels until the end of the year and to 2021 – which has been a secular theme that was only paused for the election.

Eli Lee, Bank of Singapore

Head of investment strategy

At this point, barring major surprises, we believe that Biden will take over the administration with a divided Congress, that is, the Senate under the control of a republican party majority, and the House of Representatives by the democratic party.

Under a Biden presidency, we expect an overall environment characterized by the post-pandemic economic recovery, moderately higher inflation, and a weaker US dollar. This will be broadly supportive of equities, credit, commodities, and emerging markets

Over the medium to long term, we believe the market outlook remains positive given the long-term post-pandemic recovery and the accommodative stance of major central banks. Macro trends such as sustained ultra-low rates and waning US dollar strength remain supportive of risk assets.

Allianz Global Investors

We suggest that investors keep a close watch on the flow of macroeconomic data such as jobs, wages and inflation. 

In the US, the value-cyclical sectors of industrials, financials and energy have been hit hard this year, while growth sectors like technology and consumer discretionary have soared. This may shift somewhat in the next 12 months, regardless of which party wins the election.

Investors may want to consider allocations to select themes. Cyclicals, emerging technology with long-term growth potential, infrastructure, US housing and clean energy may all be potential winners in a post-2020 US election era.

Globally, we may see US and non-US assets driving market performance. Over time, consider Europe for select areas of value and sustainable investments. In addition, emerging markets, China and North Asia could provide secular growth potential – supported by a softer US dollar and a return to global growth in 2021. 

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