The next few weeks will be exciting. 5 November, election day in the USA, is approaching quickly. The race is on for the next US president, and possibly the first female one at that. On this day, the members of the House of Representatives and one third of the Senate will also be elected. Naturally, the duel between Donald Trump and Kamala Harris will be the centre of attention.
Erste.Investment.Forum 2024 dominated by the US elections
Reason enough to dedicate the Erste.Investment.Forum 2024 entirely to the race for hegemony in the United States. Maximilian Clary und Aldringen, Head of Erste Private Banking and member of the management board of Erste Bank in charge of the retail customer segment, invited the journalist and author Hannelore Veit and Gerold Permoser, Chief Investment Officer at Erste Asset Management, to speak on 1 October. In addition to the political background, the question also arose as to how the election of Trump or Harris would affect the equity market and investments.
Hannelore Veit, who covered Donald Trump’s first term as head of the ORF’s Washington office, got to the bottom of the Trump phenomenon. During the primaries, she travelled across the USA, capturing the mood: from the academic elite to the workers and farmers in rural communities, aptly summarised in her current book “Who’s Afraid of Donald Trump?”. She presented copies of this book to the participants of the event, with a personal dedication.
Trump “not to be taken literally”
The answer to this question, to get straight to it, may sound surprising to Europeans, but it is unequivocal. “A great many Americans are not afraid.” Donald Trump is back, even if she would never have thought so herself after the events of 6 January 2021 (the storming of the Capitol, ed.). We Europeans may ask ourselves, “What is wrong with the Americans, are they all crazy?”
It is not that easy to categorise the political events, because she fears that we are still not listening carefully. Trump has managed to win over a wide range of demographic groups, not just ordinary people but also intellectuals and minorities such as the rapidly growing Latino population, and he is popular with women – despite his crude language. He is not seen as a politician, but as a businessman and entertainer who is taking a stand against the establishment in Washington. Trump is said to be competent in economic matters, to pursue a strict course in immigration policy and not to shy away from criticising “political correctness”, which many find annoying. People forgive him his mistakes and also his constant lies, which he spreads under the motto “not to be taken literally”.
Harris scores with liberal positions
His opponent, Kamala Harris, received a boost after the hype at the Democratic Party conference, but now things have gone quieter around her. As Vice President under Biden, she barely made an appearance and was given the most difficult topic, securing the Southern border, where she achieved nothing at all. Nevertheless, her chances of becoming the first US president are not bad.
She is younger and better educated and, with her liberal positions on abortion, for example, embodies the antithesis of Trump’s policies. She is also seen as more predictable in terms of foreign policy and is likely to continue Biden’s transatlantic policy. In terms of economic policy, China is likely to remain the major rival for her, much like for Trump. All in all, Veit sees the chances of both candidates winning the election as 50:50. One thing is clear from the outset: the USA is a stable democracy, so there is no need to worry about it being undermined.
Permoser: the dominance of US equities won’t change
For Gerold Permoser, Chief Investment Officer at Erste Asset Management, the elections are “extremely important”, but not for the financial markets. Using the example of a long-running chart since 1900, he showed the audience that the US equity market had always risen in the long term under both a Democratic and a Republican president.
Note: Past performance is not a reliable indicator of future performance.
Volatility, a measure of price fluctuations, did increase around elections, but would fall again shortly after the election. The key question for Permoser is how growth will develop after the elections. Fund managers rarely position themselves directly on the outcome of elections. Elections are too information-efficient for that. You can’t find information that allows you to predict elections better than what is publicly available. In addition, politicians’ campaign promises are not implemented 1:1, and there are often unintended consequences or even the opposite of the intended result: for example, under Trump, alternative energies boomed, while under Biden, oil and gas companies experienced a boost.
Note: Past performance is not a reliable indicator of future performance.
That being said, there are major policy differences between the candidates: Trump wants to reposition the USA as a fossil fuel superpower, while Harris wants to continue the transition to sustainable energy. There are also clear differences in trade policy: Trump is against globalisation and would impose higher tariffs on Chinese imports. Harris wants to reduce the impact of globalisation, primarily through an active industrial policy.
Technology, innovation, and energy supply remain the dominant topics
Permoser is in no doubt that the USA will retain its leading position on the equity markets even after the elections. “Technology, innovation, and energy supply” will remain the defining topics. He views Trump’s attempts to interfere in the Fed’s policy as neither helpful nor successful: “Trump wants a weak dollar, but his actions are strengthening it”. And he cannot just oust the Federal Reserve chairman from the Federal Reserve. He also sees no end to the hegemony of the US dollar in the world financial system. After all, what is the alternative?
“China has built the complete infrastructure for the internationalisation of the Chinese yuan. Nevertheless, its use among market participants who have a choice is limited. The rising national debt in the United States is a cause for concern though. At some point, the markets could rebel against this situation. Here, both Trump and Harris have failed to present a credible plan for long-term budget restructuring, although the Democrats have at least indicated a willingness to take some measures.”
Focus on quality shares and high-yield bonds
In view of the topicality of the issues raised, Erste Asset Management is currently focusing on quality shares in its asset management, but also on value and small caps, which should benefit from a Trump victory. In the bond segment, we reduced the interest rate risk, and the focus is on higher-yielding bond classes, both in the corporate sector and in emerging markets. A complement of gold serves to stabilise and hedge against higher volatility.
Conclusion
Even if the question of who will lead the world’s most important superpower as president in the future is the focus of attention, what really counts for equity market players is the future growth prospects for the US economy.