Investment solutions team
Taking a world view of the US election


Taking a world view of the US election

Our specialists in Mercer investment solutions team reflect and provide their views on the US election. To read the full Mercer views of the US election, please access our report here

 

Rupert Watson
Head of asset allocation, UK & Europe

“Emotions run high around large political events, so it is important as investors we concentrate on where the meaningful differences will come after any immediate volatility subsides. While the election of a new US president is an extremely important global affair, it is less clear the impact it will have on financial markets. The most pressing issue for the world’s largest economy is around fiscal support as the pandemic continues – and we know each candidate has his own distinct approach. However, there are other variables to consider. Whichever party controls the Senate will have a significant impact on what measures the newly elected president can pass, so we are closely watching the Congressional race, too. Looking further out, we need to consider how Biden or Trump would handle the same challenges facing the president’s office, namely, China, anti-trust measures around big tech and the growing social divide in the US. These are the issues that will define the presidency for investors, not the immediate reaction on election night.”

 

Anthony Brown
Director of capital markets, US

“Although elections are important, they are just one factor among many that drive markets and economies. However, for investors, this one could be a little more important than usual, due to the urgency to agree further fiscal stimulus that both candidates will face – and how they implement this is going to have the greatest impact over the medium and long term. We are already seeing a trend towards closer fiscal and monetary cooperation that could lead to higher inflation. This is more likely to appear faster if the Democrats sweep both Houses of Congress and White House, due to a more aligned system passing a more significant package that would be monetised by the Federal Reserve. This also brings a danger of a drift towards stagflation over the longer term, which investors need to watch out for. Something else to consider in the event of a Biden victory is the potential reversing of Trump’s tax cuts and the application of new ones on investments and capital gains. Yet, these moves are more likely to impact markets than long-term growth. In short, there is almost certainly going to be some market volatility – especially if the result is not immediate and absolute – but it is the long-term consequences that should draw investors’ focus.”

 

Gwion Moore
Head of investment strategy, Pacific

“With the US election fast approaching investors are increasingly thinking about the impact of different outcomes on their investment portfolios. Naturally, the focus has been on the outcome of the Presidential election, however it is the Congress that sets the direction of domestic policy. In this election all 435 seats from the House of Representatives and 35 of the 100 Senate seats are up for grabs.

 

The re-election of Trump to the Presidency will likely see a continuation of the America first style approach to trade and international cooperation, while a Biden victory is likely to see a return to the more internationalist multilateral approach of the Obama years.

 

The trajectory of domestic policy is a little harder to forecast as it will be dependent on the balance of power between the House of Representative, the Senate and the Presidency. There exists both the potential for a return to the kind of intransigent bi-partisanship that led to the US credit ratings downgrade in 2011, but also the possibility for a more united approach that will help the US and the world recover from the shock of the COVID pandemic.”

 

Cameron Systermans
Head of mainstream assets, Asia and Japan

“The noise during the run up to the US election is not really surprising, but for investors, it is a focus on the policies rather than the politics that matters. While each candidate will have similar issues to face, they are likely to handle them differently and the key issue for Asia is trade. Under the latest presidency, Trump has been effectively dismantling the global trade system by tearing up the US’s longstanding approach. It has been a radical move and a key driver of both volatility and market direction. While the Covid-19 pandemic has calmed down both the rhetoric and action significantly, if Trump wins another term, the risk of re-escalation of these tensions is high. However, even if he does not follow the same disruptive course of action, it is unlikely a Biden win would unwind many of the moves made over the last four years, as tariffs have proved popular with some Democrats. Importantly, this new approach to trade does not just impact China – with a growing contribution to the global economy, the rest of Asia will be looking at the election with interest, too.” 

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