Analysis: After America First, some investors bet on a Biden boost abroad

In this news, we discuss the Analysis: After America First, some investors bet on a Biden boost abroad.

(Reuters) – After four years of America First, some fund managers outside the United States looking for big winners from post-election investing are confident the rest of the world is shining their turn.

With several polls pointing to a Joe Biden presidency, these investors are looking to assets such as emerging markets or European bank stocks, as potential beneficiaries of a Democratic victory while being cautious in markets such as Russia who could be affected by the change.

A recovery in US growth fueled by stimulus, accompanied by corporate tax hikes – both expected under Biden – could push S&P 500 capital to other markets, especially if a coronavirus vaccine becomes available early next year.

A consensus for a weaker dollar, driven by more predictable trade and foreign policies under Biden, will add to the big advantage for emerging markets.

Valentijn van Nieuwenhuijzen, chief investment officer of asset manager NN IP, said the ties between the United States and China are essential for the markets.

“Biden will not increase (the tensions) further nor will he withdraw aggressively – I expect the relationship to stabilize rather than intensify, and that will be a benefit to the market.” and that will give extra headroom for the rest of the world. “

Many investors have said they favor European cyclicals – companies that do well in a dynamic economy and stand to gain when higher spending drives bond yields up.

Cyclicals – oil companies, autos, and banks – typically outperform “growth” stocks when bond yields rise. US markets are dominated by growth stocks, particularly technology.

Cyclical bonds

Meanwhile, a potential victory at Biden could “be a game-changer in the relationship with Europe at the geopolitical and security level,” said van Nieuwenhuijzen, who expects such a result could benefit European exporters from Italy to France as well as to German car manufacturers.

The MSCI index of European auto stocks dMIEU0AC00PUS for example, less vulnerable to US tariffs under Biden, has outperformed broader regional stocks .dMIEU00000PUS more than twice since June.

European auto stocks and Blue Wave

There is still enormous uncertainty for investors as opinion polls could change as US election day approaches.

Jonathan Bell, chief investment officer of Stanhope Capital, increases his exposure to Asia. He believes that while a Biden victory would be positive, Asian markets are resilient enough to withstand a surprise Trump victory.

“If Trump wins, you might be able to make more money in the United States… but Asia will probably benefit again. So if Biden wins, maybe the US (market) gets away with it and Asia benefits, ”Bell said.

If Trump wins, investments in U.S. companies for further corporate tax cuts could be among the winners, the fund managers said.

AMERICA FIRST

Trump’s policies in America first are often blamed for a dramatic decline in U.S. investment abroad.

Figures from the Department of Commerce show that US foreign direct investment (FDI) grew by around $ 94 billion last year – less than half of the amount seen in 2015. Net flows to Europe were than $ 8.3 billion, up from $ 152 billion in 2015, according to the data.

America first: foreign direct investment decreases

US investments in foreign stocks and bonds also declined. The U.S.-domiciled accounts tracked by consultancy firm eVestment have withdrawn some $ 23 billion from European stocks over the past five years, $ 21 billion from Asia-Pacific stocks and $ 20 billion from Asia-Pacific stocks. emerging market equities.

There were net outflows of European and emerging fixed income securities of $ 2.2 billion and $ 18.2 billion respectively, eVestment said.

Dirk Willer, global head of emerging markets at Citigroup Inc, predicts that US foreign flows will recover if the noise of the trade war subsides. And even if Biden sticks to a tough stance from China, she will likely be less erratic.

“At least you won’t wake up in the morning and check Twitter to see if you need to worry about your yuan trade, ”Willer said, referring to Trump’s late-night tweets that can frequently send the markets sprawling.

EMERGING WINNERS

Investors have said that a convincing victory for Biden would especially benefit emerging markets, an area that has historically outperformed during Democratic presidencies.

EM and American elections

Now it could also benefit from the weak dollar and less pressure on companies to return their business activities to the United States. Latin America – especially Mexico – will benefit from a shift in immigration and trade policies as well as FDI, investors predict.

Ruble, Peso, Biden

But the peso gains since early June, when betting odds shifted decisively to Biden, have come at the expense of the Russian ruble.

A Biden victory could be bad news for Moscow in the form of a tougher US administration and lower oil prices if Biden continues his green agenda or allows Iran to resume crude exports. Russian equities have also lagged other emerging markets since early June.

Russian stocks lag behind EM

“There are currently more than enough reasons why Russia might see more sanctions. You have Biden who is more than willing to punish Russia, ”said Amundi’s emerging market chief Yerlan Syzdykov, who has been“ cautious ”about Russia.

Reporting by Karin Strohecker, Sujata Rao and Elizabeth Howcroft in London; Additional reporting by Saqib Iqbal Ahmed in New York. Edited by Jane Merriman

Original © Thomson Reuters

Originally posted 2020-10-20 00:06:12.

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