Biden victory will be good for the markets: Principal Global Equities

There is a possibility of civil unrest besides volatility in equities leading up to the US presidential elections, as investors worldwide track the polls, said Mustafa Sagun, CIO, Principal Global Equities. In an interview with Mint, Sagun said Capital markets in the US and abroad could face additional difficulty if the US presidential election is contested and a clear winner is not determined quickly.

The main economic implication of President Donald Trump’s re-election would be a continuation of low taxes and deregulation, including a potentially antagonistic stance on investing in environmental social governance (ESG) and climate policy.

Conversely, a win by Democratic rival Joe Biden would likely see more progressive policies, including higher taxes, health care reform, and more alignment with European climate policies and ESG support. Geopolitical relations would likely have a more agreeable tone under Biden, especially with the United Nations. However, both parties seem determined to keep the balance of power with China in check, Sagun said.

Former vice-president Joe Biden’s pledges in the run-up to the 3 November election includes proposals to address the covid-19 pandemic, racial injustice and climate change. Three critical factors, US trade and foreign policy, monetary policy, and fiscal spending on infrastructure, as an outcome of the election will impact asset classes worldwide.

“Tax implications, regulatory actions and other legislation will be closely monitored. On a positive note, the Federal Reserve and monetary conditions globally remain a strong support catalyst for equity investment, amid increased savings rates among those remaining employed. Ultimately, continued progress on the pandemic recovery will be essential to sustainable equity valuations,” Sagun said.

Quality growth opportunities in the US remain in place, led by the pandemic that has accelerated established trends such as e-commerce and digitalization, he adde.

“We do not advocate attempts at timing the markets in the US, in contrast to some emerging markets where economies and markets are much less diverse, and hence, certain macro and governmental policy variables are more important in considering equity investments. For most individual and institutional investors, having a steady long-term target allocation to US stocks, along with periodic rebalancing, is an appropriate cornerstone to a diversified portfolio,” he said.

“While eyes will remain on the election, the path to covid recovery and reliable vaccination programmes will be a key sentiment driver for equities. As we embark on multiple late stage drug trials for a potential vaccine, positive news from this, as well as signs of a quicker economic recovery, could trigger rerating opportunities in the US that have lagged significantly. Selectivity among stocks and industries is the key, as always,” he said. Sagun, however, believes that a Democratic party win could be favourable for equities. “If the results conclude with a ‘blue wave’ outcome, there’s a potential for downside risk to equity markets,” Sagun said.