UBS AM: Prospects for risky investments remain intact

UBS AM: Prospects for risky investments remain intact

5 november 2020

Verenigde Staten
Verkiezingen USA.jpg

Although the probability of a so-called blue wave in the U.S.A. is as good as non-existent, the outlook for risky investment categories remains intact. This is the opinion of asset manager UBS AM. Below you will find UBS AM's expectations regarding the impact that the various scenarios may have on the markets.

Biden win, divided Congress

  • From a market perspective, this outcome does offer positives.
  • The strong rally in Nasdaq futures triggered circuit breakers in the overnight session, indicative of pricing out the tax and regulatory risks that may have arisen under a unified Democratic government. A more subdued outlook for activity generally benefits secular growth stocks.
  • At the same time, a President Biden would be likely to engage in a more predictable foreign and trade policy, which may diminish much, but not all, of the protectionism discount embedded in foreign assets. As such, we also view the rise in the US dollar to be inconsistent with the implications of a Biden presidency. We would expect the US dollar to weaken, particularly vs. emerging market currencies, should clarity towards his eventual victory emerge.

Trump win, divided Congress

  • Should Trump win re-election, we would expect a repeat of some of the trends that marked his 2016 surprise win: the outperformance of US equities, and a stronger dollar.
  • US equities would be expected to do better than their international counterparts due to their elevated weighting toward high-growth companies, which tend to outperform in sluggish growth environments and worsening COVID-19 outcomes.
  • In addition, global assets would have to price in a higher degree of trade risk in Trump’s second term.

Contested election

  • Protracted uncertainty could undermine the economic outlook at a time when COVID-19 cases are picking up across the developed world, and scuttle the limited prospects for fiscal support during the transition period.
  • We would expect equities to perform poorly in this environment.
  • Other haven currencies could be poised to gain relative to the US dollar, with riskier emerging market currencies coming under pressure.
  • Persistent election uncertainty may create market dislocations that can serve as attractive investment opportunities.

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