Economists and financial analysts are fairly mixed on the outcome of next week’s US election, its effect on the US and global economies, and how the financial markets will react, but appear to agree on some fundamentals.
Here is a selection of their views, leaving you to draw your own conclusions and make the appropriate investment decisions.
(A caveat for investors, which I always include in columns of this nature: Ignore this and other media commentary on financial markets if you are confident in the robustness of your investment portfolio and have time on your side – at least five years.)
Speaking at a recent PSG Think Big webinar, Dr Larry Hatheway, chief economist and co-founder of Jackson Hole Economics, said the concern was that it would likely be a very close, contested election. “We’ll potentially see lots of litigation, and possibly even some violence or ‘non-normal’ behaviour among the electorate and politicians.”
Hatheway believes this could linger well into December, with the outcome of the vote only being certified on December 16. “Uncertainty is typically the enemy of markets, so it would not surprise me if we saw some volatility, particularly given how rosy market conditions have been in the run-up to the election.”
Regarding its impact on South Africa, Hatheway said emerging markets are intrinsically tied to the fortunes of the global economy and are therefore extremely sensitive to dollar prices, interest rates and global growth.
He said a Trump presidency would bring a more hawkish policy environment, which would likely reignite inflation. “One of the paradoxes of Trump policy is that it would probably lead to a stronger dollar because of the higher interest rate environment.”
While this may spark US growth, Trump’s domestic, foreign and trade policies as well as ongoing geopolitical tensions could spell hardship, particularly for emerging economies, Hatheway said
Aiman Shanks, investment director of quantitative equity products at Schroders, suggested that markets would struggle to make headway until after the US election, but they don’t really care who wins.
“Recent research by Research Affiliates suggests that the political affiliation of the winning candidate in US elections has less bearing on markets than how close the election was. In the 24 US elections since 1928, the S&P 500 (index of 500 top US companies) generally weakened in the run-up to a close election but then rallied in the final week and continued to improve, albeit with greater volatility, after the election. That said, the key message from previous elections based on longer time horizons is that markets often do not care who wins after the initial instability subsides,” he said.
Shanks said that Trump is clearly advocating the benefits of a weaker currency to improve the country’s trade deficit, but his proposal to increase US trade tariffs is likely to have the opposite effect, particularly if the tariffs are accompanied by fewer rate cuts. If realised, this will be a headwind for emerging markets in particular.
In her weekly economic report, Investec chief economist Annabel Bishop noted that the close nature of the run-up to the US election has increased market uncertainty.
She said the US economy should see better economic growth in the short term under a Trump presidency, as taxes are cut (for both corporates and individuals), funded by higher tariff revenues, increased energy production and cuts in wasteful expenditure. However, tax cuts could add substantially to the US budget deficit and national debt.
“Trump’s proposals for extending income-tax cuts and lowering corporate tax lifts debt to 116% of GDP in 2028. This follows from Bloomberg’s view that ‘in 2024, the US is expected to run a fiscal deficit of around 6.5% and its debt-to-GDP ratio will approach 100%, up from 79% in 2019’.”
She was also of the view that the rand could be expected to be weaker under a Trump presidency.
Rashaad Tayob, macro strategist and portfolio manager at Foord Asset Management, said that whereas a Harris victory could signal higher taxes and increased regulation for financial institutions, a Trump win would see the opposite. Deregulation would “ease capital requirements and potentially boost bank returns, a win for shareholders”. But while tax cuts would be good for the consumer and the US economy, the already large deficit “makes significant tax cuts impractical at this point”.
Brian Arcese, global fund manager at Foord, said Harris and Trump both favoured protectionist trade policies, especially regarding China, which could result in higher tariffs and increased market volatility. He warned that imposing high tariffs could bring about unintended consequences, such as making US industries less competitive globally.
“Trump advocates a 60% tariff on all Chinese goods. These tariffs will impact global supply chains, potentially driving inflation and affecting South African import costs, while failing to weaken China’s global position.”
While US presidential elections do not materially drive markets, Tayob said, areas of policy divergence between the candidates will indeed affect corporate profitability and South African investor returns. “The US election outcome could significantly impact markets, taxes, regulations and investment strategies,” he said.
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