Analysis: Green and easy money investment bets will be election winners
LONDON/HONG KONG/SINGAPORE (Reuters) – The close and inconclusive U.S. election has scuppered some short-term trades premised on a clear Joe Biden sweep, although most money managers say they are sticking to bets on plentiful stimulus and a green boom, regardless of who triumphs.
President Donald Trump’s battle against Biden, the Democratic challenger, is going down to the wire but with millions of votes still to be counted, betting odds are swinging from one to the other as more states report results.
From trade to taxation to climate, the two men have vastly different policy platforms. Biden’s pledge to tie the U.S. economic recovery to tackling climate change is set against Trump’s desire to remove regulatory hurdles to oil, gas and coal.
Lulled by Biden’s opinion poll lead, some investors had positioned for higher U.S. bond yields and renewables shares. Some of those trades took a hit – shares in U.S. solar firms and European wind farms fell, while U.S. Treasuries gained and European shares .STOXX50E.STOXX underperformed.
Traders also dumped automotive stocks as the spectre of more Trump protectionism resurfaced following years of a trade war with China.
“A blue wave would have been very beneficial to the green theme, and everything in that sector might suffer in the short term,” said Didier Borowski, head of global views at Amundi, Europe’s biggest fund manager.
“If Trump is re-elected, the main threat for Europe is the start of a trade war, with Germany in particular and new tariffs on the auto sector. It’s a key risk on the radar screen.”
However, with a clear election outcome still potentially days away or ending up in the courts, fund managers are in no rush to shake up portfolios.
Several reasons. First, regardless of who is the next U.S. president, the global health and economic crisis triggered by COVID-19 will dominate the investment landscape.
Second, Asian shares clung to gains, implying confidence the region’s economic growth would not be derailed even by a Trump win. And perhaps most importantly, money should remain cheap and plentiful in the United States and elsewhere, underpinning the longer-term outlook for equity markets.
A U.S. stimulus package is considered inevitable as politicians of all stripes try to spur an economic recovery hit by a resurgence in COVID-19.
While a Biden win could bring more spending – along with higher yields on the government debt to pay for it – the prospect of a delayed outcome sparked little panic, though U.S. Treasury bonds rallied.
“Where we do have an anchor is that we know monetary policy will remain very easy and may become even easier,” said Salman Ahmed, global head of macro and strategic asset allocation, at Fidelity international.
A shift to more environmentally friendly investing, too is here to stay, most reckon.
“The greening of the global economy is going to be something that will happen regardless of who’s in charge, green energy is cheaper than fossil fuel energy,” said Rupert Watson, head of asset allocation at Mercer Investments.
“Politicians can give it a kick in the right direction but it will happen anyway.”
CHINESE STORY INTACT
In Asia, that meant continued bets on China’s recovery.
While the yuan CNH= sold off sharply as Trump’s chances appeared to improve, most did not expect the turbulence to last.
“Chinese equities and bonds will likely continue to attract interest from overseas investors … Chinese consumers and exports, the two pillars to China’s economic growth engine, are intact,” said Lei Wang, portfolio manager at Thornburg Investment Management in New Mexico.
Indeed, that has put a solid footing under company earnings and pushed China’s blue chip index .CSI300 up about 16% this year compared to a 1.4% drop for world stocks .MIWO00000PUS more broadly – something investors think has further to run.
“We’re not trying to trade the election, it’s too difficult,” said Vikas Pershad, a Singapore-based fund manager at M&G Investments.
“The U.S. share of (global) GDP has very steadily fallen (in my lifetime). Where has it gone? It has come to Asia. I don’t think that will change.”
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