We learned from the Scottish referendum that betting exchanges were a better predictor of a particular voting outcome than the official polls, so in that vein the EU referendum should have resulted in a vote to Remain.
However, this theory proved wrong. I have heard an explanation of this failure stating that the number of bets to Leave were larger than the number to Remain, but the average value of the bet to stay was significantly larger, which skewed the potential outcome towards Remain. Perhaps next time we could look at the number of bets made for one outcome relative to another – if we are allowed to view this data.
So what are we going to use to forecast the result of the US election? A reputable bookmaker had the odds of Hillary Clinton winning at 4/9, with Donald Trump at 7/4, putting Mrs Clinton clearly in the lead. I could find no data on the number of bets placed.
Polling data coming out from the US is pretty mixed, but there is general agreement that Mrs Clinton remains the favourite to succeed, but not by a huge margin. This is all a bit reminiscent of the Brexit vote. I even found an article where a variety of psychics were asked to use their particular talents to forecast the result, and with the usual caveats they too were for Mrs Clinton.
Why does any of this even matter, though? Irrespective of the reader’s own personal politics, it is becoming clear that the candidates represent very different agendas for the US, which could spill over to becoming global issues.
Mrs Clinton is the establishment figure and, according to most commentators, represents the closest version of “business as usual”. Particular areas that investors might wish to focus on relate to her views on the cost of healthcare (too high), fiscal policy (small easing, no helicopter money), defence (increased foreign policy, so more spending) and regulation (proponent of greater financial oversight).
In contrast, Mr Trump is not viewed as being an establishment figure, despite being white, male and a billionaire. His policy seems to be more rhetoric than well-planned/costed initiatives. We all know about “the wall”, but he has also alluded to a more protectionist agenda that sees the US rein in its foreign policy objectives and wind back globalisation.
With respect to fiscal policy there is little known apart from that Mr Trump will spend a lot more than Mrs Clinton, with little detail on how this is to be funded. More specifically, Mr Trump has also pronounced that Janet Yellen would be removed from the Federal Reserve, which perhaps indicates that monetary policy would become less independent of government.
All US presidential elections matter, but this one seems to carry quite some risk for investors.
In our view, an unexpected Trump victory will have consequences for both the equity and bond markets initially, which could spill over into global markets. Unfunded spending plans would lead to the view that inflation would be about to rise, without necessarily the benefit of strong growth.
A Clinton victory would be seen as a safer outcome, but even here it may mean stimulus-addicted markets may have to realise any future fiscal easing could be quite modest.
Marcus Brookes is head of multi-manager at Schroders
