Rebecca Cretney details how important the US election is to investors globally. She also explains how we have sought to mitigate the risks to clients’ portfolios posed by the election’s uncertainty.
I overheard a conversation yesterday between two people chatting about the US election, one with an American accent. One person casually said to the other: “But whoever wins doesn’t have any impact on you, does it?”
The outcome of the US election has a bearing on everyone. There is a huge difference between Democrats and Republicans, and their foreign and domestic policies are of particular importance. These differences affect markets.
As such, it is worth flagging that the country’s foreign and domestic policy affects three major areas:
This, in turn, has a major impact on US and world markets. Both candidates have huge spending programmes. Biden’s spending is set to increase by US$11.1 trillion, which is partially offset by US$5.8 trillion in tax hikes and other savings. Trump plans to increase spending and tax cuts by US$5.45 trillion over the next decade, offset by US$0.75 trillion in savings.
Biden would, therefore, increase spending at twice the rate of Trump, with much of that spending expected to happen in the early part of his four-year term. Outright spending is more reflationary (i.e. supports an expansion in the level of output of an economy) than tax cuts because it gives money to consumers, who would spend the money, relative to producers, who tend to save it. The Biden plan would be more stimulating for overall activity even if the increase in debt is about the same. And while both candidates promise another stimulus package, and a Democratic one would be the more generous, both would have a positive impact on markets.
The biggest immediate risk to financial markets is not that which each candidate poses, but that the results of the election themselves could be contested. Trump has already ramped up the level of tension by declaring victory on election night and reiterating the allegations linking mail-in ballots to fraud. As we commented in our recent webinar, markets rely on the integrity of a country’s institutions (police force, judiciary, healthcare etc.). When these are called into question by the sitting president, it equates the world’s largest economy with issues usually seen in emerging markets. Where participants cannot rely on the stability of a country’s institutions, it is more difficult for the economy and markets to absorb adverse shocks.
But the biggest long-term issue is foreign policy, in particular trade wars with China and, possibly, Europe. The US/China commercial interaction has been the most important commercial relationship in history. The US has in many ways helped engineer China’s rise, which has been vital for the global economy. In the webinar previously mentioned, we explained how the two greatest powers’ decoupling poses a risk to global growth. Although Biden will not go easy on China, he is more diplomatic. Under Trump, we may see phase two of the trade war with China.
Meanwhile, we may also see spats with the EU hitting the news headlines as perceptions of instability and competition between the two blocs spill into tit-for-tat tariffs. Although Trump was always unlikely to change his views on climate change and security – issues very close to European hearts – he could see his victory as an endorsement of those views. With the EU already teed up to impose US$4 billion in compensatory tariffs on US exports, in response to Washington subsidies to Boeing, tensions could escalate quickly. This would be bad for world trade, economies and equities.
It is worth noting that whatever happens in the US election, the market remains very polarised at the moment, with central bank policies having driven yields on cash and government bonds down towards zero. The outcome of the election is not going to change this. As countries continue to support their economies during this pandemic, debt levels will keep expanding and interest rates will remain low to enable debt maintenance.
It is also worth flagging that clients’ portfolios are not especially positioned for any particular result and, by the same token, we would not consider them especially vulnerable either. While the pollsters predicted a Biden victory in the presidential race, they may well be proven wrong once more. The Democrats do not seem to have been granted the powers of a “Blue Wave” (i.e. winning the presidency, the House of Representatives and the Senate). Meanwhile, one election result does not alter long-term economic trends – that takes decades.
We, of course, recognise that the outcome has the potential to amplify volatility across equity, bond and currency markets, particularly in the short term. Given that the current portfolio positioning is cautious, should the outcome lead to cheaper valuations (due to market declines), our focus would be to consider adding to riskier assets, particularly if we see the S&P 500 breach our target levels. One sector that is likely to come into the cross hairs in either victory is tech. From the attempts by social media companies to label Trump’s posts to the possible tax revenue that could be extracted from these companies, either administration could put paid to the outperformance that the FAANGs1 and their peers have enjoyed.
In other areas, it’s doubtful that government bond yields will move so much that we will want to add interest rate risk, although we will be watching the credit spreads as corporate and high yield bonds are also areas that may offer up some value.
In summary, our portfolios continue to have a cautious positioning. They are managed with a long-term outlook as opposed to trying to tap into speculative gain. Our global outlook and multi-asset class approach give us the ability to tap into the best opportunities in the world. While we are keenly aware of risks such as the US election, the trade wars or Brexit, having huge diversification continues to be the key to mitigating them.
We regularly publish articles and insights about trends and events in financial markets. Just submit your email address to receive the updates in your inbox.
Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how goals-based investing can help, or call +44 (0)1624 645000 to speak to our client services team.
If you would like to find out more about how we can help clients manage their investments, please contact us on the same number as above, or complete a form using the links towards the end of the page.
1 The FAANGs are Facebook, Amazon, Apple, Netflix and Google’s parent company Alphabet.
Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rate changes also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios. They are referred to for information only and are not intended as a recommendation, not least as they may not be suitable. You should always seek professional advice before making any investment decisions.
Rebecca joined Nedbank Private Wealth in May 2004 having moved to the Isle of Man from Barcelona to pursue a course in Business Studies with the Isle of Man Business School. Rebecca was appointed to the role of investment counsellor in March 2019 to focus exclusively on the company’s discretionary investment management services.
She works closely with our teams of private bankers to provide support in advising our clients with integrity, and to give additional technical investment expertise where more complex portfolio requirements exist.
Rebecca is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Chartered Wealth Manager.
Rebecca joined Nedbank Private Wealth in May 2004 having moved to the Isle of Man from Barcelona to pursue a course in Business Studies with the Isle of Man Business School. Rebecca was appointed to the role of investment counsellor in March 2019 to focus exclusively on the company’s discretionary investment management services.
She works closely with our teams of private bankers to provide support in advising our clients with integrity, and to give additional technical investment expertise where more complex portfolio requirements exist.
Rebecca is a Chartered Fellow of the Chartered Institute for Securities & Investment and a Chartered Wealth Manager.
+44 (0)1624 645813
Nedbank Private Wealth manages mainly multi-asset portfolios, so our communications don’t tend to focus exclusively on one asset class. However, today we propose discussing equities. Why? Because when you consider the news headlines, and then consider equity markets, we appear to be living in a parallel universe.
Read moreThe news feed from the coronavirus is all consuming, and rightly so. A disease that was widely touted, just a couple of months ago, as ‘similar’ to influenza has infected millions and killed hundreds of thousands of people.
Read moreTwo major disasters have crossed paths and it seems that the only good news we read about these days relates to how the coronavirus pandemic is slowing down climate change. Otherwise the press is full of heart-breaking stories of loss, peppered with acts of kindness and a sense of us trying to pull together. No one can tell us with absolute certainty what the future looks like, or when this will end. It can feel like we are staring into the deep unknown.
Read moreOne of the first lessons you are taught when studying anything investment related is the role diversification plays. For my investment exams, I was taught a diversified portfolio consisted of around 20 stocks ‒ a mere nod to today’s view. Instead, your portfolios – if you are a client of Nedbank Private Wealth that is – are invested across thousands of companies.
Read moreAs we witnessed in our latest webinar (click here for the Q&A), investors are struggling to understand everything given the tsunami of news. Markets have begun to claw back losses in some areas, but there may well be more bad news ahead, before we see a sustained trend in positive headlines. So what’s next?
Read more“He allowed himself to be swayed by his conviction that human beings are not born once and for all on the day their mothers give birth to them, but that life obliges them over and over again to give birth to themselves.” ― Gabriel García Márquez, Love in the Time of Cholera
Read moreAs children, most of us were excited to visit a sweet shop – I definitely was. Dazzled by the bright display of shelf upon shelf of glass jars, there were sweets of every possible shape, colour and taste – all covered in sugar. Some coins lay in my hand, but which sweets would I choose?
Read moreToo often we believe clients sit in too much cash. We understand why people do this, but we think that too much can be an issue. How much do you really need?
Read moreWe are one of only a handful of wealth managers who use currency management as part of our investment approach. In this short 45-second video, we explain why.
Read moreInternational Women’s Day was on Sunday 8 March, a day that since 1910 has focused attention on women’s rights. The day – and the invitation to speak on the topic at the Institute of Directors on 6 March – prompted me to think through how much has changed for women in the last 110 years. While there are still challenges ahead, this is pivotal time for women.
Read moreAllie Kirk, private banker, speaks to Rebecca Cretney, one of our investment specialists, about the current market turbulence.
Read moreIf you are interested in becoming a client, please complete the form via the ‘become a client’ button below. Alternatively, if you are already a client, or if you have a question about how we help clients in particular circumstances, please use the ‘contact us’ button.
We will get back to you as soon as we can during office hours, which are Monday to Friday, 8am to 8pm (UK time), except for UK public holidays.
Copyright Nedbank Limited 2023.
Thank you for your interest in Nedbank Private Wealth. Please call us on +44 (0)1624 645000 or complete the requested information and one of our team will get back to you soon. We look forward to speaking with you. Please note: If you are an EU resident, we are unfortunately unable to offer our services to you at present.
* Required fields
This is the Nedbank Private Wealth International website. You can access Nedbank Private Wealth South Africa by clicking on the link or using the toggle in the header.
This website is accessible worldwide. We cannot guarantee that the website or the information contained within it complies with, or is appropriate for use in, all jurisdictions. The purpose of this website is to provide information about Nedbank Private Wealth, our products and services, and how we aim to help our clients. Not all products and services referred to in this website are available in all jurisdictions. The information contained in the website is not intended to, and does not constitute, any offer by us to sell, nor it is intended to be an invitation or solicitation to buy, any product or service, and must not be relied on in connection with any investment or other decision. More information is available in the legal notices section of this website. This message will only be displayed once.
This website uses cookies to improve your experience on our website. We recently updated our privacy policy and our cookies policy to ensure you understand how we protect your personal information. Please note that in order to stop cookies being downloaded, you will need to change your browser settings, which we explain in our cookies policy.
