A global affair
Most national elections are not global events. The US presidential election is an exception. The US accounts for more than half of the MSCI All Country World index, and the US dollar is involved in nine out of 10 currency transactions worldwide. President Donald Trump’s victory in 2016 triggered the so-called “Trump trade.” Risk assets rallied, government bonds fell, and the US dollar initially strengthened as investors priced in a combination of lower taxes, looser regulation, and higher fiscal spending.
At the start of the year, it was President Trump’s election to lose, running on a strong economy and a 50-year low in the unemployment rate. The economic disruption caused by the coronavirus pandemic has changed that. Currently, the president’s approval rating has declined, and he lags former Vice President Joe Biden in the polls.
In this publication, we consider the impact of the US election for investors around the world, the potential market implications, and the best investment approaches to take in the lead-up to the vote. However, in the very near term, we think the most important point is that both parties have an incentive to provide further stimulus before the election.
The candidates have diverging policy platforms, so our focus has been to identify scenario-based investment ideas that could perform in the event either contender wins the White House and Congress—the so-called “Red Wave” or “Blue Wave” victories. A Blue Wave, for example, would likely benefit assets exposed to energy efficiency, smart mobility, and renewables both in the US and abroad. A Red Wave could benefit select energy and financial companies as the threat of tighter regulation recedes, while space and defense companies could also do well in a Trump second term. We also recognize that some investors prefer to keep politics out of their portfolios, and so we recommend ideas for investors who wish to remain more insulated from the main campaign issues.