USNov 8 2016

Investors torn over impact of US election result

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Investors torn over impact of US election result

Managers and strategists are advocating radically different investment approaches as uncertainty over the US presidential election leads to few concrete conclusions about the fate of the country's equity market.

In recent months managers have highlighted the likes of the defence sector as a space that they believe could benefit in the event of a win for either Hillary Clinton or Donald Trump on Tuesday evening.

But the candidates’ varying policy proposals in other areas, and elevated valuations for US equities in general, mean fund houses are split over how to prepare for the result, with some urging caution but others forecasting a double-digit market lift.

Andrew Goldberg, global market strategist for JPMorgan Asset Management, said the firm had moved a US overweight back to neutral territory, a view that has not been influenced by the election.

“The US economy appears set for stronger growth and a lift in corporate profits,” he said. 

“Consumer balance sheets are strong, and with only a slow rise in inflation and an even milder increase in interest rates expected, a recession is anything but imminent. But eventually the next recession will come. We see the expansion as being closer to the end rather than the beginning, and it is only prudent for investors to consider positioning more cautiously by reducing large-risk overweights that might define an early or mid-cycle portfolio.”

Others have been emboldened by a belief that valuations could soar further once political risk is removed.

Nick Ford and Hugh Grieves, who run Miton’s £203m US Opportunities fund, argued the market was primed for a “major rally” because many investors were holding elevated levels of cash due to election fears. 

“We have positioned our fund for a cyclicals-led rally once the uncertainty relating to the elections is dispelled and investors switch to concentrating on the strength of the US economy and corporate earnings growth,” they said.

While Mrs Clinton had extended an early lead over Republican Mr Trump, polls have narrowed in the run-up to November 8, particularly following news of a further probe into the Democrat candidate’s handling of secret information via email.

With Mr Trump promising significant tax cuts and stimulus programmes, Axa Investment Managers’ research and strategy team believes a Trump victory would benefit “the majority of the MSCI US Index” in the medium term, compared with only marginal gains in the event of a Clinton triumph.

The presidential result is not the only political risk factor to have split investor opinion. Market-watchers are divided on the merits of the US Congress acting as a potential check on presidential ambitions.

The Miton managers said the status quo would be preserved if Mrs Clinton won the White House, with the Republicans keeping control of the Senate and House of Representatives. They added that Congress would also be unlikely to back some of the “wilder” protectionist policies were Mr Trump elected.

But Columbia Threadneedle global chief investment officer Colin Moore warned that action was required on several fronts, including infrastructure spending and immigration rates, meaning any political deadlock could be detrimental for the US economy and prove a headwind for assets. “We need policy on important issues, so I don’t think paralysis is such a good thing this time around,” he said.