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US presidential election: risks and opportunities


This article draws on the insights of AMP Capital’s investment teams to reflect on the implications of the two outcomes of the US election and compares and contrasts the candidates’ policies.

The US presidential election on 8 November between Republican candidate Donald Trump and Democratic candidate Hillary Clinton is a hotly contested race. Recently there has been a widening of opinion polls, but political uncertainty remains. The potential for increased market volatility is high over coming weeks.

The details of some policies are not clear, and may not be clear for some time, particularly given control of the two houses of Congress will be a factor in determining which elements of a candidate’s policy platform ultimately become law.

Key points

Policy differences between the candidates will have some specific asset class impacts. In general, however, the perception is that a Clinton victory represents continuation of the Democratic party status quo, and associated with this is the expectation of fewer policy surprises.

The change to a Republican administration under Trump has the potential to result in more dramatic shifts in intended policies. The ability of either party to implement policy will be dependent on Congress.

Bond markets

US bond markets could weaken on a Trump victory, reflecting an expected increase in the budget deficit, and allow the Fed to assume a more aggressive rate hike path than currently. This has the potential to push the US dollar higher. A Clinton victory is unlikely to point to a different path for interest rates than is currently priced into the market.

Infrastructure

Both candidates seek to increase infrastructure spending, which is one of the few areas of spending agreement. For US listed infrastructure, particularly the energy and pipeline sector, neither of the candidates have plans that would be detrimental.

For direct infrastructure, a key area to monitor is the view of each candidate on the use of private capital to fund the nation’s infrastructure development. However, this is currently unclear. Irrespective of the election outcome no immediate changes to deal flow or opportunity base is anticipated.

Real Estate

In general a Clinton victory, assuming a Republican-controlled Congress, would likely result in more of a status-quo environment for US real estate investment trusts (REITs). A Trump victory could see some sectors doing better, such as the office sector. Regardless of who wins, defence spending is almost certain to increase.

Equities

Historically, elections have been meaningful drivers of equity volatility. Looking back at all post-war elections (1948 to 2012), realised volatility is highest in the October of an election year than any other month during election season (July to November).

If history is a guide, increased volatility that causes increased trading volumes will likely precede the election rather than follow it. No lasting impact on liquidity of either the equity or fixed income markets as a result of the US election is anticipated.

Summary of policies

Below is a summary of Trump and Clinton’s policies.

Taxation:

Infrastructure

Government spending:

Trade:

Regulation:

Immigration:

Healthcare:

Foreign policy:

Look out for next week's edition where we consider what a Republican or Democrat victory means for infrastructure investments.

Funds related to this article: Dynamic Markets Fund

Navigating the ups and downs of the market cycle. This fund uses dynamic asset allocation to actively adjust the split of investments across asset classes to achieve diversification in response to market changes.

The Fund aims to achieve growth above inflation1 and smooth out the economic cycle over a rolling 5 year basis.

1Consumer Price Index (CPI) - the Reserve Bank of Australia inflation rate, trimmed mean

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