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US Election: Risk and Opportunity

US Election: Risk and Opportunity

Five ways the US election could impact US investments

With the election just weeks away, the stakes are high for a country that has been grappling with the COVID-19 pandemic, social unrest and an economic crisis.

Before the country heads to the polls, First Sentier Investors invited two of our local investment experts to discuss the potential impacts of the election.

John Ma, Head of Investments, North America, Unlisted Infrastructure and Jason Epstein, Senior Portfolio Manager, Co-Head of High Yield, shared their insights in an investor update.

 

1.     A ‘Blue Wave’ win could spark a progressive policy push

As polls are predicting a Democrat win is more likely, this outcome is mostly priced into markets already, Mr Epstein said. What’s more difficult to predict is the scale of such a win. If the Democrats gain a majority in the Senate, they will have more scope to make changes.

“A so-called Blue Wave, where Democrats take back the Senate, could lead to a more aggressive push of their policy priorities. Some of the policy areas already flagged in Biden’s campaign include tax rates, healthcare, infrastructure spending, climate change policy, education and housing,” Mr Epstein said.

 

2.     Stimulus funds will flow freely - regardless of the winner

It’s clear that boosting the flagging economy will be a priority for the new President – whoever it is.

Mr Epstein said, “There will be a tremendous level of fiscal and monetary stimulus, combined with the prospect of a new stimulus bill and the idea of a Fed ‘put’ for the foreseeable future.

“The real question is how sustainable that approach is. Will it continue to underpin markets, or is there a breaking point? “There are also questions about how it will impact the US dollar, and if the US dollar will retain its place as the leading reserve currency.”

 

3.     China relations remain under pressure

In a break from past Democratic administrations, Biden has indicated he will maintain Trump’s tough stance on China.

“A tense relationship with China is likely to be the new normal, regardless of who’s President. Biden is looking to make the US competitive with China and to bring jobs back to US in areas such as automotive manufacturing. The goal is to have strong domestic production capabilities that reduce their reliance on China,” Mr Epstein said.

 

4.     Infrastructure will remain a local affair

Mr Ma said it’s important to recognise that the infrastructure market is predominantly under state and municipal control, rather than federal.

“The White House has less direct ability to influence outcomes in the infrastructure sector. While funding can be allocated to the states at a national level, it’s the states and cities who mostly choose how to deploy the funding. As such, the election is unlikely to have a big impact on specific infrastructure projects.”

It is possible, however, that governments prioritise short-term job creation.

“In the wake of the 2008 recession, Federal stimulus funds were focused on ‘shovel-ready’ projects that would create jobs immediately. It was a missed opportunity for bigger, more ambitious projects. Hopefully we don’t see the same phenomenon play out this time,” Mr Ma said.

 

5.     Democrats would give renewables a boost

One area of clear differentiation between Biden and Trump is the Democrats’ emphasis on renewable energy.

“The more progressive elements of the party put forward concepts like the Green New Deal during the primaries season, and this has informed Biden’s policies.

“It’s likely Biden would be a net positive for the renewable energy sector, which is already experiencing strong tailwinds. While power generation is controlled locally and regionally, a Democratic administration is likely to put an emphasis on clean energy through levers like tax credits,” Mr Ma said. 

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