In the spirit of modern US presidential races, October has been chock full of one ‘surprise’ after another. From Donald Trump’s leaked ‘locker room talk’ footage to the reanimation of Hillary Clinton’s presumed to be dead and buried email debacle, the constant stream of controversy has kept the US electorate and foreign investors on their toes, preventing the election from being anything but a clear-cut competition.
Ahead of election day, there are plenty of investment managers who are simply choosing to ignore the deafeningly loud noise from analysts and pundits on either side, as many did before the EU referendum.
But with the memory of markets getting caught out after the Brexit vote still fresh in investors’ minds, many are pre-emptively transitioning into damage control mode.
Share price shocks
One of the chief concerns for non-US investors is the election’s potential impact on equity markets and the relative strength of the dollar.
Historically, uncertainty and US presidential elections have gone hand in hand, but recent data produced by Invesco Powershares showed that when an incumbent is not in the running (like in 2000 and 2008), the magnitude of this volatility upon US equity markets tends to be greater.
Both the Dow Jones Industrial Average and S&P 500 were looking the worse for wear this week. The former fell for its third consecutive month and the latter suffered its worst month since January. The Nasdaq Composite also lost much of the ground it gained in October on Monday.
However, Fidelity International multi asset CIO James Bateman predicts that the outcome of the election also has consequences for UK equities, particularly the constituents of the FTSE 100. “Around 75% of FTSE 100 earnings are denominated in US dollars, making the outcome of the Hillary versus Trump circus and the resultant impact on the US dollar a key question for UK investors,” he stated.
In Bateman’s view, a Clinton presidency would pose greater risks for certain individual sectors like healthcare, which comprises over 11% of the FTSE 100 stocks. However, he sees Clinton as the “continuity candidate for dollar strength”.