US Elections: What Can Multi-Asset Investors Expect?

(Part three of three) In this final blog of our series, Matteo Germano, Global Head of Multi Asset Investments shares his thoughts on the implications for multi-asset investing.

From a global multi-asset perspective, how is the US election affecting your
investment outlook?

On the basis of current policy proposals we do not expect any significant change if Clinton gets elected. In line with the Obama administration, she is focusing on increasing middle-class incomes and creating fair growth.

Trump’s proposals, on the other hand, could have a major impact on financial markets if implemented. In the short-term, a Trump victory could generate Brexit-like volatility, followed by markets cooling down in a wait-and-see mode. Investors will try to assess what could be the effective implementation of the proposals raised during the Presidential campaign. The whole macro framework could be impacted by Trump’s political choices: high infrastructure spending and lower corporate taxes may boost growth, but the future for government debt would be more uncertain. Social equity would not be the focus, which could raise growth sustainability issues. Interest rates would likely be higher in the fiscal framework proposed by Trump, although a lot will depend on Fed policy at the time.

What would a Trump victory mean for emerging markets?

The anti-trade policies announced by Trump could have an impact on US trade partners’ economies; for example, the promised tariffs against China’s exports could potentially deteriorate the relationship between the US and China. The China region has strongly benefited from globalization but could suffer under Trump.

Latin America could also be vulnerable if Trump wins. Trump has proposed the cancellation of trade agreements, ending remittances to Mexico and deporting illegal workers. All these measures would undermine growth in emerging markets, hitting trade balances and internal demand. The sharp volatility experienced in September by the Mexican peso would probably return and could also affect currencies of other major countries exporting to the US.

How will the election impact commodities?

Energy policy proposals have been quite vague from both candidates and many of these policy changes would require congressional approval, so the gap between proposals and actual implementation may be wide. So far, Trump’s approach to the energy theme has been much more radical and focused on increasing the US supply of coal and fossil fuels.

The demand curve of energy would probably shift upwards during a Trump presidency, as energy efficiency restrictions and environmental regulations would be eased. On the other hand, Clinton would work to strengthen environmental regulations and to increase the supply of renewable energy. Demand for coal and oil would tend to decline. We expect the effect on oil prices to continue to be determined by the global drivers such as OPEC policy.

How should investors approach the markets during this US election cycle?

Political uncertainty is playing a major role both in the US and Europe. With populism spreading and anti-mainstream solutions arising, risks of deviations to sustainable growth paths are high. In this phase, we believe, it is important to maintain well-diversified portfolios. This is not the time – in our view – for strong directional views. A focus on active management, quality of assets and downside risk mitigation is crucial in the current market.

For asset allocation, we favor keeping a cautious approach on equities. We remain slightly defensive in European stocks, where the medium-term Brexit consequences are still unclear, and neutral on US equities. We think gold is a key structural hedge against potential spikes in volatility. In this context, a rigorous risk management approach, and the use of hedges, would help protect investors from tail risks and smooth the consequences of unforeseeable events.

About Matteo Germano

Matteo Germano is Global Head of Multi-Asset Investments at Pioneer Investments. The Multi-Asset group manages a wide range of top down investment strategies, encompassing asset allocation, stock and fund selection. In addition, it offers a set of advisory services including asset liability management, (ALM), asset allocation overlay, manager selection and fiduciary management. Matteo is a member of the Global Investment Committee and several other Boards and Global Committees for Pioneer Investments. An Economics graduate of the University of Genoa, Matteo completed a MSc in Finance at the University of London before beginning his professional career with Eurispes, a UK Institute for Social and Economic Research and Furman Selz. In 1996, he subsequently joined the Unicredit Group covering different roles in Research, later moving to the Asset Management division, (now Pioneer Investments), to lead the Fundamental and Quantitative Research teams, before assuming the responsibilities for Multi-Asset strategies.
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