PA ANALYSIS: Weighing up White House risk

Added 2nd November 2016

With less than a week to go before one of the most contentious presidential contests concludes, some market participants are ignoring the noise, but many are fretting over shocks to equity markets and the potential fallout from protectionist trade policies.

PA ANALYSIS: Weighing up White House risk

In the spirit of modern US presidential races, October has been chock full of one ‘surprise’ after another. From Donald Trump’s leaked ‘hot mic’ footage to the reanimation of Hillary Clinton’s presumed to be dead and buried email debacle, the constant stream of controversy has kept the US electorate and foreign investors on their toes, preventing the election from being anything but a clear-cut competition.

Ahead of election day, there are plenty of investment managers who are simply choosing to ignore the deafeningly loud noise from analysts and pundits on either side, as many did before the EU referendum.

For Tilney’s head of key clients Harry Morgan, the uncertainty and dread accompanying the Clinton Trump showdown fills him with a sense of déjà vu.

“Every four years you see the same research coming out,” Morgan said. “If it was going to have an impact, then the market would be discounting it already. The stock market might wobble the day before the election but the outcome of the event is not going to fundamentally change anything. Besides, the president doesn’t actually take office until two months afterwards so there is time for markets to calm down,” he explained.

Murray Asset Management chief investment officer Simon Lloyd has taken a different tact, choosing to maintain his post-Brexit beefed up US position and avoid the still politically fragile UK and Europe.

Although Lloyd concedes that both candidates are hugely unpopular in the eyes of the American populous, he thinks that both Clinton and Trump have presented policies that will maintain growth in the US and ease the fiscal rules.

“They both want to change the tax rules in such a way as to allow US companies to bring more cash back onshore,” he said. “While the election is fascinating politically, I don’t think economically it is going to be that much of an issue for the US. Of all the western democracies, the US is the one that has done the right thing and written off the bad debts and moved on. Meanwhile, Brexit negotiations have the UK and Europe in sclerosis.”

But with the memory of markets getting caught out after the Brexit vote still fresh in investors’ minds, many are pre-emptively transitioning into damage control mode. 

Share price shocks

One of the chief concerns for UK investors is the election’s potential impact on equity markets and the relative strength of the dollar.

Historically, uncertainty and US presidential elections have gone hand in hand, but recent data produced by Invesco Powershares showed that when an incumbent is not in the running (like in 2000 and 2008), the magnitude of this volatility upon US equity markets tends to be greater.

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