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U.S. Elections 2016

Barings’ investment professionals provide insights on how the U.S. presidential election may impact the fixed income, equities, alternatives and real estate markets.

Macro Overview

While the media and political junkies have seemingly focused on each and every post-convention poll to decipher clues to the eventual winner of the U.S. presidential contest, one of the most accurate predictors of election results has been the performance of the S&P 500 in the three-month period leading up to the election. Since 1928, the S&P 500 has predicted 20 of the last 23 presidential winners and every election since 1984. The simple formula is if stocks are higher, the incumbent party wins. The uncanny accuracy 87% of this relationship may not be far-fetched if it is viewed through the lens of social mood. The stock market’s performance in the months leading up to the election reflects the collective view of the economic outlook. A declining stock market (negative economic outlook) may express a desire for change.

Potential implications of a Trump victory

Trump’s victory was certainly a surprise to markets. However, like Brexit, very little is known about the longer-term impacts of Trump’s victory. Like all government transitions, the policies of the new administration will take time to materialize and the resulting impact on financial markets and the economy will likely ebb and flow over the next four years.

While we do know that President-elect Trump has a mandate for change, it remains to be seen how effective he will be in governing and implementing his proposed policies.

In his acceptance speech, President-elect Trump struck a conciliatory tone. Often, the rhetoric of a hard-fought political battle is not the best indicator of the course of the presidency. At the end of the day, events happen, decisions are made and political inertia can undermine even the most passionate campaign promises.

That said, political uncertainty, especially in the U.S., has been one of our key macro themes. While plenty remains unsettled after the election, like Cabinet composition and other key appointed positions, tax cuts, fair trade policy and a more business-friendly environment could lead to greater progrowth sentiment. However, it is still unclear as to how much the U.S. will look to reassert itself as a leader in global affairs. That said, a Trump administration would have the potential to disrupt the Washington D.C. establishment scene and provide a different path forward for the public-private partnership dynamic.

If major policy reform is unattainable, Trump could unilaterally exert the most influence on trade policy through use of the President’s executive authority which would not require Congressional approval. While there has been much discussion recently about the limits of monetary policy and a passing of the baton to fiscal policy, we will be closely watching fiscal spending proposals for the impact on the deficit and what the resulting implications are for the U.S. dollar and interest rates. At present, corporate fundamentals appear stable but a change in administration and policy will likely produce some volatility and provide new opportunities for investors across multiple asset classes.

 

 

Market Insights

High Yield

We anticipate that high yield issuers will largely weather any short-term volatility ...

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Multi-Asset

For markets, a Clinton victory is a far less troublesome outcome in the immediate post-election period ...

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Emerging Markets Debt

We believe the environment remains a healthy one for emerging markets and we continue to see ...

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Global Equities

The investment case for healthy companies is not dependent on who holds presidential office ...

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Small Cap Equities

Our focus remains on investment opportunities in companies rather than on macroeconomic news ...

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Emerging Market Equities

Our aim remains to find attractively priced companies with the potential for strong long-term earnings ...

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Asian Equities

We remain focused on bottom-up fundamentals and continue to seek strong Asian companies with positive ...

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IMPORTANT INFORMATION

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service.  The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice.  Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments.  The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document.  No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision. 

This document is issued by Baring Asset Management (Asia) Limited.  It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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