US elections – Local manager research views
The US elections, taking place today on Tuesday, 5 November 2024, have the financial services and investment industries waiting in anticipation, attempting to forecast the outcome. It’s a tight match between former US President Donald Trump and the current US Vice President Kamala Harris. According to the New York Times polling average (updated on 30 October 2024), Harris’s lead over Trump in the national polls is starting to reduce – leading by less than one percentage point overall.
Not only does the US election outcome have an impact on US citizens, it also impacts global markets and economies as well as the local market and economy. With this in mind, we reached out to our local managers to get their views on how the US elections would potentially impact their portfolios; opportunities each outcome would present for SA investors; the impact on foreign investment flows into South Africa; the effect on global trade relations; and the potential positives the outcome may bring for SA. Below is a summary of their responses:
- Have you made (or plan to make) any portfolio adjustments in preparation for the upcoming US elections?
Laurium Capital | The US elections are a very closely fought contest with days to go until the polls open. Right now, it is very unclear who will win, what they will win, and who will lose. We do not and have not previously positioned our portfolios for a particular outcome. This is even more important when the race is as closely fought as the 2024 US presidential race. |
Truffle Asset Management | The impact on SA should be limited and hence, we can maintain our positive tilt in favour of local assets, given our constructive view on SA. We maintain an underweight position to the US, given its high valuations. It’s not clear that the overall profitability of the US would be lifted meaningfully by either party. There will be US sectors that will do better or worse depending on the election outcome. |
M&G Investments | No |
Ninety One | We maintain our current portfolio positions ahead of the US elections, guided by our long-term investment philosophy rather than short-term political outcomes. Current polling indicates an extremely close race between the candidates, with considerable uncertainty around future policy implementation. Given this ambiguity, making tactical portfolio adjustments based on potential election outcomes would be speculative. We believe adhering to our proven investment process and maintaining well-diversified portfolios remains the most prudent approach during this period of political uncertainty. |
Coronation | When we manage portfolios in a world where we expect the unexpected, we build diverse, anti-fragile portfolios; we own assets with a valuation margin of safety; we use the offshore capacity to diversify SA risk and take advantage of compelling opportunities; and we protect against the downside.
We do this with reliance on our tried and tested investment process and philosophy. We continuously remind all our clients of this as best we can – not just during election years. We continue to remind our clients that successful investing demands a price. But its currency is not rands and cents. The currency is volatility, fear, doubt, uncertainty and regret. The reality is that the more things change, the more they stay the same and staying invested within the appropriate investment mandate is the only way to achieve your goals over time.
We expect short-term volatility in the markets but at the end of the day, investment decisions will be based on our valuation principles, and we stand ready to allocate to undervalued assets and asset classes during the uncertain election times. We have demonstrated our ability to move quickly within our portfolios when we see large market price dislocations. |
Allan Gray | It is important to note that we don’t have an edge in predicting the outcome of the US election, or the impact that the result could have on markets, both domestically and globally. Whilst we do not attempt to forecast political outcomes, nor the impact that they will have on a variety of macroeconomic variables, we are alert to how market sentiment might react and the opportunities that this can often create. Having said that, it seems that the US election is likely to be an extremely close contest.
Given that the portfolios are already well diversified and positioned for an elevated risk environment generally (the US election is only one of many risks that lurk, both visible and invisible), we are not adjusting our portfolios in preparation for any particular presidential candidate to win. Importantly, the portfolios already have meaningful levels of liquidity with which to exploit any possible opportunities that a spike in market volatility might create. |
Terebinth Capital | While historical analysis shows that volatility around (US) elections doesn’t last beyond a few days, the neck-and-neck polling, combined with solid performance year to date has meant that we are choosing to throttle back risk ever so slightly, ahead of 5 November. On the hedge fund specifically, we have been quite active in moving positions around, while on the strategic income side we will always take a slightly longer-term approach, even if we remain tactical and active in our management style. Across both strategies we are choosing to remain somewhat hedged against the risk of short-term rand weakness in the instance of a ‘Red sweep’.
However, as there are many cross-currents currently facing investors (local political dynamics and the MTBPS; global geopolitics and Chinese stimulus – as well as the recent BRICS event), focusing only on the impact of a US election outcome (which is not guaranteed to be released next week, should there be objections to the results), could see us miss the wood for the trees. |
Abax Investments | Our investment process is designed to deal with various scenarios and risks that may arise. However, it is the unexpected events that have the biggest impact and often the market reacts differently to what one might expect.
We therefore endeavoured to build robust portfolios that should be passable in most outcomes. To do this, we focused on:
• Understanding the risk premium currently baked into asset classes and whether or not that is sufficient given all the risks on the horizon. • A high degree of diversification across asset classes, geography, individual security, and risk drivers with the key principle of having offsets in the portfolio. • Overlaying hedging strategies to protect on the downside. • Seeking preferential parts of the capital structure to invest in, again assisting in downside protection. • Having a larger bias than usual for higher quality companies with strong balance sheets
At the moment we are alive to the many risks, globally and locally, and are positioned relatively conservatively across all our multi-asset funds. |
- What opportunities do you think will be presented by the US elections for South African investors?
Laurium Capital | It really depends on who wins, and the policies that they implement. A Harris victory would very much be a continuation of the status quo without much change. A Trump victory could mean that the African Growth and Opportunity Act (AGOA) accord is at risk, given his stance on tariffs and this may impact various SA sectors that export to the US. Trump’s stance on China may have a negative impact on the likes of Naspers and Prosus. |
Truffle Asset Management | There will be increased market volatility which creates opportunities for active managers to implement ideas. |
M&G Investments | We have not positioned our portfolios for specific events. Our investment process does not seek to build client portfolios for single events. Instead, it focuses on medium- to long-term return opportunities offered by the various asset classes. Our guiding anchor is to focus on valuations and assess whether current valuations offer compelling returns given the fundamentals underpinning assets. |
Ninety One | The market impact will largely hinge on two key factors: the presidential outcome and who will control Congress. Our analysis suggests two primary scenarios.
Trump administration scenario: · Republican control of both Congress and Senate would strengthen policy implementation capability. · Potential heightened trade tensions could create headwinds for emerging markets. · Focus likely to remain on America-first trade policies and protectionist measures.
Harris administration scenario: · Expected continuation of current Biden administration’s economic policies. · Maintenance of existing international trade relationships. · Continued emphasis on domestic industrial policy and manufacturing incentives. · Potentially more favorable environment for global trade relationships.
Given the significant uncertainty surrounding both the election outcome and subsequent policy implementation, we maintain our neutral positioning. We will reassess our strategic allocation once there is greater clarity on the political direction and specific policy initiatives. |
Coronation | The up-and-coming US elections (as was the case with other elections throughout 2024), is yet again adding uncertainty to the emotional rollercoaster of investing. We’ve seen this time and time again and yet investors forget that market timing doesn’t work in their favour. Behavioral financial principles are more important than ever, and we continue to remind our clients that successful investing demands a price.
We know that short-term market volatility is inevitable and even if one has perfect investing foresight, this won’t help to side-step portfolio drawdowns. We looked at a hypothetical portfolio of only guaranteed winners which shows that it too had to navigate meaningful drawdowns that took long to recover from. Unfortunately, volatility is the price of admission for successful long-term investors and elections bring volatility. |
Allan Gray | There are many moving parts influencing market sentiment. Hence it is difficult to say what specific opportunities may arise that could confidently be directly attributed to the outcome of the US elections. Pre-conceived notions of likely impacts on policy are of little value in our opinion. For example, the trajectory of US public finances is unlikely to differ materially in our view, given the levels of debt and fiscal deficits already baked into that economy. However, election-related market volatility could present opportunities for South African investors to acquire high-quality assets at attractive valuations, particularly in sectors where market sentiment might temporarily disconnect from underlying fundamentals. We cannot pre-judge what or where these might be, rather, we can focus on being alert to the risks and opportunities as they present themselves. We are already relatively cautiously positioned with ample liquidity. |
Terebinth Capital | The only ‘certainty’ we can expect from the election is increased volatility. With polls mixed in relation to who is in the lead, but market consensus seemingly warming up to the idea of either a ‘Red sweep’ or Trump + split Congress, any alternative to these outcomes could create relatively large moves to unwind strategies favouring the consensus outcomes.
Any material weakness in local assets will more than likely create the opportunity to scale back into risk. The cause for such a move could be overstated in the long-term, with the assumption that the worst policy promises were either part of electioneering strategies or at best could take long to implement, if indeed they come to pass (think trade tariffs, or cancelling of trade agreements).
Alternatively, a ‘sell-the-rumour’, ‘buy-the-fact’ sharp rally in the aftermath of the election could bring into play opportunities to rotate into longer-term diversified strategies with a view on the potential rising risk of a reflation cycle. |
Abax Investments | The 2024 US elections are highly anticipated. As the election approaches, and in its aftermath, we can expect heightened market volatility, with significant fluctuations in stock markets, bond yields, and exchange rates.
This type of volatility presents investors with opportunities but also pitfalls. A Harris presidency is likely to maintain current policies, signalling continuity in both domestic and foreign policy. A second Trump presidency, however, we see as having a major impact on markets and the world order.
A Trump presidency could initially result in a stronger dollar for three reasons: · Proposed tariff hikes on trading partners (60% on China and 10-20% for all other countries) would lower demand for imports and improve the US trade balance. · The tariffs would be inflationary which would put pressure on the US Fed to keep short-dated interest rates higher, increasing rate differentials to other currencies. · Proposed capital gains tax reductions would lead to an even wider budget deficit resulting in increased issuance of US Treasuries and higher bond yields.
Over the medium term, however, we see potential risks for dollar weakening. Firstly, Trump has made comments that put a question mark around the independence of the US Fed under his presidency. Any doubts around this could shift faith in the strength of the currency. Secondly, we also see a risk that US protectionist policies will not only face retaliatory policies from trading partners, most notably China, but may also accelerate efforts by China and its allies to seek alternatives to the dollar and US Treasuries for recycling their financial trading surpluses. This includes moves to develop a new BRICS currency (dubbed “the Unit”). While we can’t see the dollar being replaced as the dominant reserve currency of the world, at the margin this could still mean a weaker dollar in the longer term. |
- What impact could the US election outcome have on foreign investment flows into South Africa?
Laurium Capital | If the US dollar weakens, there may be positive flows into emerging markets and SA, but both Harris and Trump would prefer a strong US dollar. Flows into SA are dependent more on SA growth, economic conditions and earnings of South African companies and are not determined by a US election outcome. |
Truffle Asset Management | A Trump victory could be negative for emerging markets and could result in a strong US dollar in the short term. On the other hand, a Harris victory could see a weaker US dollar and lower US long term yields and a rally in emerging market risk assets. |
M&G Investments | We don’t do any forecasting and don’t have a view on specific things like foreign investment flows. |
Ninety One | A Trump presidency could materially impact emerging market capital flows, particularly through:
· Potential reduction in US foreign direct investment into emerging markets. · Risk of capital repatriation to the US given potential tax incentives. · Possible slowdown in cross-border investment flows. · Higher risk premiums for emerging market assets. · Potential pressure on emerging market currencies. · Reduced portfolio flows from US institutional investors. |
Coronation | Of the major policy areas at stake, fiscal policy is most dependent on who controls Congress.
Sequencing matters: Economic and market impacts will depend on the order and magnitude of these policies, making it challenging to assess the combined growth and inflation impacts.
The clearest equity market impacts are via changes to tax policy and tweaks to the Inflation Reduction Act, while macro impacts are likely to be largely a result of policy choices in areas like tariffs and immigration (as well as tax or fiscal policy). |
Allan Gray | South Africa’s attractiveness to foreign investors depends more on internal than external factors, such as domestic economic fundamentals, relative attractiveness of investment opportunities, local policy implementation, and structural reforms. |
Terebinth Capital | Theoretically a ‘Red sweep’ could bring trade issues into play for South Africa, especially post BRICS, where the advancement of the ‘Global South’ theme seems to have shifted up a gear. Dollar/US hegemony, and Donald Trump are unlikely going to like this – he is on record saying he will punish those that refuse to trade in the reserve currency. The risk, of course, is his bluff might be called. The US has a severe debt problem, and that is only resolved through finding ‘willing’ buyers for its debt. The moment that stops they are going to have real issues.
It is probably a stretch to say that all emerging markets will be at risk of significant outflows if Trump wins with a ‘Red sweep’, but it would at the same time also be naïve to think a material further weakening of USTs will not be followed at least partially, in sympathy, by emerging market debt markets. Again, our opening remarks stand. If SA sells off aggressively on a US election outcome, in all likelihood such a move should be seen as a fade. Many of the policies Trump has threatened, will be tough to implement, or at least may take some time. Markets will eventually find something else to be either cheerful about or fearful of.
In summary then, in the days following the election, all bets are off the table in trying to call direction or magnitude of moves – which is why we are being tactical in our approach into the election. But in the weeks that follow, the dust should eventually settle, with fundamentals coming to the fore again. |
Abax Investments | A stronger dollar and higher US interest rates under a Trump presidency could reduce demand for emerging market assets. Historically such a combination has been very negative for investment flows into emerging markets in general.
Sentiment towards emerging markets that are dependent on foreign investment is also vulnerable to potential geopolitical instability under a more unpredictable and hostile US foreign policy driven by the motto “America First”.
On the other hand, a continuation of existing policy under a Democratic win would provide more certainty and could support increased foreign direct investment into South Africa. |
- Do you expect the outcome of the US presidential election to have an effect on the supply or demand of the commodity complex?
Laurium Capital | A Trump victory with increased tariffs is likely to result in an increase in commodity prices. |
Truffle Asset Management | A Trump victory with additional tariffs on China could see a large fiscal stimulus response from China which could be positive for commodity prices, particularly sentiment. |
M&G Investments | We don’t do any forecasting or have a view on specific things like the effect of an election on the supply/demand of commodities. |
Ninety One | We know that Trump has also threatened a blanket 60% tariff (or more) on imports from China. Even if Canada and Mexico are exempt under the United States-Mexico-Canada Agreement, this would be a major escalation of US trade protectionism, increasing tensions with major trade partners. India and Indonesia would likely be net beneficiaries relative to the rest of Asia, particularly China. There is downside risk in oil-importing countries if geopolitical uncertainty pushes up oil prices. |
Coronation | Sovereign indebtedness remains a longer-dated risk and China finally pulled the trigger on a bold stimulus package. Chinese stocks, including commodity and luxury goods companies, have rallied from very oversold levels.
Geopolitical risks remain heightened as a result of the ongoing conflict in the Middle East and the Russia-Ukraine war; a big election year creates further uncertainty (the result is usually market price dislocations); and increasing polarisation and protectionism is likely to be inflationary. It also increases political risk. Gold has been strong in response to geopolitical risk and moves by the US to weaponise the US dollar after the Russian invasion of Ukraine. |
Allan Gray | While election outcomes may influence market sentiment in the short term, predicting precise impacts remains challenging due to numerous confounding factors. Ultimately, fundamental supply-demand dynamics, global economic growth, and broader geopolitical factors will remain the primary drivers of commodity prices over the longer term. The trajectory of the Chinese domestic economy is arguably the largest driver of supply and demand dynamics in the major commodity markets, more so than the outcomes of the US elections. |
Terebinth Capital | Oil, in particular, could be volatile, but while Trump has aggressively supported fossil fuels, Harris has also recently softened her stance against fossil fuels. The odds are stacked against significantly higher oil prices outside of a significant geopolitical escalation in either the Middle East or Ukraine.
Regarding other commodities, demand should outstrip supply for many of the industrial (green/AI) related sectors in years to come.
In a reflating economic environment, the outlook for commodities should become more constructive, irrespective of who occupies the White House. |
Abax Investments | Any effects on supply and demand of the commodity complex from the outcome of the US presidential elections would likely only be indirect.
To the extent that a Trump presidency indeed leads to increased protectionism, higher trade barriers and increased uncertainty, this would likely have a negative impact on both investor confidence and global economic activity, which could also slow demand for commodities. However, increased tensions could also see a short-term demand boost from a desire to rebuild strategic commodity reserves. |
- Do you think that the outcome of the election will cause a change in US global trade relations?
Laurium Capital | If Harris wins, no change. If Trump wins, he has articulated that he will meaningfully impact trade through a tariff regime. |
Truffle Asset Management | A Trump victory could accelerate trade conflict and higher tariffs. |
M&G Investments | We don’t do any forecasting. |
Ninety One | Trump administration:
· High probability of broad-based import tariff implementation. · Potential significant increase in trade barriers across multiple sectors. · Likely negative implications for global trade volumes and economic growth. · Risk of retaliatory measures from major trading partners.
Harris administration: · Expected continuation of current multilateral trade approach. · Lower likelihood of aggressive tariff implementation. · Focus on strategic trade relationships while maintaining existing frameworks. · More predictable global trade environment.
These differing trade policy stances could have meaningful implications for global supply chains, corporate profitability, and international capital flows. We continue to monitor these developments and their potential impact on portfolio positioning. |
Coronation | We cannot forecast the outcome of the election, and even if we could, it is not clear how the economy or stock markets may react. In essence we try not to have views on events out of our control and with a highly uncertain range of both first- and second-order consequences. |
Allan Gray | The election result could influence US global trade relations significantly and how this plays out will unfold over time. A Harris administration may pursue more predictable trade policies that could enhance bilateral trade with South Africa. Conversely, Trump’s “America First” approach might lead to heightened protectionism and tariffs, complicating trade dynamics and potentially affecting South African exports. The overall impact will hinge on how each candidate’s policies are implemented post-election and how the respective trading partners respond. |
Terebinth Capital | The obvious answer should be “yes” for many, but in reality, the facts suggest the correct answer is “no”. The US is in a battle with China for global dominance. It is struggling at a UN and NATO level. It is fighting BRICS. It is struggling to get to grips with where exactly it stands with its neighbours, both north and south of the border. A few decades ago, global forecaster Dave Murrin called the US ‘an empire in decline’. So far, he has been proven right. |
Abax Investments | Trump views the trade balance as one of the most important, if not the most important, factor in judging bilateral relationships. This appears to be the case regardless of nations being a US ally or not. The world also learnt from his first term that he indeed pursues policies that he said he would, and as such it would be foolish to believe he would not go through with increasing trade barriers by imposing tariffs on primarily China, but also other trading partners. Trump considers tariffs a guaranteed win: either the US ‘makes money’ from tariffs, or foreign companies shift production to the US to avoid them.
However, such tariffs will inevitably be reciprocated by the nations they are imposed on, and result in a trade war which escalates trade restrictions between the countries involved. Economically, this disrupts global supply chains and increases costs for businesses and consumers and slows down economic growth.
Higher import costs are inflationary and reduce consumer spending, while exporters face reduced demand. Over time, prolonged trade wars harm all involved, reduce international cooperation and encourage a shift toward protectionism. It is hard to predict how a trade war develops over time, to the extent it escalates or deescalates. |
- Do you think there might be any positives for South Africa’s economy or financial markets based on the US election outcome?
Laurium Capital | We think Harris would mean more of the same; at the margin Trump is possibly a negative with tariffs, negative Chinese rhetoric and a strong dollar, although these may be offset by commodity price increases and potentially stronger US equity markets. |
Truffle Asset Management | We’re likely to see lower oil prices under a Trump victory which would be positive for SA. Regarding climate change, Trump is in favour of fossil fuels for energy production and is unsupportive of regulation to use renewable energy and electronic vehicles. Harris, on the other hand, is likely to maintain the Biden administration initiatives to achieve net zero and support clean energy production. It’s possible that Trump’s second administration may push to change key regulations like the IRA. Trump’s stance may impact US funding to SA for renewable energy projects (aligned to the Paris Agreement and COP 27). |
M&G Investments | We don’t do any forecasting. |
Ninety One | Despite broader uncertainties, both election outcomes could present selective opportunities for South Africa:
If Harris wins:
· More supportive environment for emerging markets like South Africa. · Stable global trade framework benefitting SA’s export sectors. · Enhanced focus on green energy transition, aligning with SA’s renewable energy goals. · Possible increased investment in SA’s critical minerals sector, given clean energy push. · More predictable policy environment, supporting international investment flows.
If Trump wins:
· America-first manufacturing policies could boost demand for SA raw materials. · Higher US rates could highlight SA’s attractive yields. · Increased global uncertainty might support gold and PGM prices. · Regional trade relationships could become more important.
These opportunities would need to be viewed alongside SA’s domestic reform progress and global market conditions. |
Coronation | The economic environment remains constructive for equities (low valuations, decent growth, and lower interest rates).
The US Fed surprised by cutting rates by 50 bps in one move – although the US economy remains in good health, inflation is seen as low enough; and we do not anticipate interest rates going anywhere near levels reached in the period of zero rates. |
Allan Gray | South Africa’s economic prospects and market opportunities in the energy transition space will likely continue to be shaped by both domestic policy implementation and broader global trends toward sustainability, rather than being specifically influenced by any particular US election outcome. South Africa’s position in critical minerals and potential for renewable energy development could present opportunities, regardless of US political developments. |
Terebinth Capital | Theoretically things might prove to be a little more positive should there be a Harris victory. However, there is a path under a Trump victory where BRICS strengthen its resolve to stand up against the risk of US dominance in global trade. It’s time to be patient, but also open-minded about the short-term trajectory of global trade. |
Abax Investments | In the event of a Trump-induced trade war, non-aligned countries may capitalise on trade gaps by stepping in to meet demand. Should the US trade relations with China become more protectionist, there is a chance South Africa, if it can retain its non-aligned stance, could attract certain foreign investments diverted away from e.g. the Asian market. Companies affected by the trade war may also look to relocate production to neutral countries to avoid tariffs.
South Africa may also benefit on a relative basis from trade deflections in terms of lower import prices, as China would look to replace lost demand for its products. However, this may hurt certain local manufacturing that will be unable to compete with lower prices.
However, South Africa’s largest trading partner is China so any slowdown in China is likely to also be negative for South Africa’s economy. Thus, we see a Harris presidency as the most positive for local markets. |
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