While we can expect the status quo if Trump wins, a Biden presidency ...

[Pages:2]For UBS marketing purposes

While we can expect the status quo if Trump wins, a Biden presidency may lessen the uncertainty around US external policy, which bodes well for emerging economies. (UBS)

US Elections

What the US elections mean for emerging markets

03 September 2020, 5:46 pm CEST, written by UBS Editorial Team

The United States continues to pull its weight in matters of international significance. It has the world's largest and deepest capital market, taking the lion's share of equity market capitalization while US Treasuries serve as the undisputed benchmark for risk-free assets worldwide. It is no wonder that investors pay more attention to the US presidential election than any other leadership contest elsewhere. The UBS Chief Investment Office takes a look at how emerging markets could be impacted by the US election with a focus on the US economy, trade, and geopolitics. The lessons of history We know that emerging market assets often experience strong, if short-lived, price moves around Election Day. We also know that emerging market assets have performed better during periods of a unified US government as well as during periods with a Democratic president in the White House. But these findings have to be taken with a grain of salt, as they rely only on seven presidential election cycles, providing a limited amount of data from which to draw definitive conclusions. A forward-looking framework Our forward-looking approach looked at three major channels of impact. First, changes in key US macroeconomic variables. The outsize influence of the US on the global stage means emerging market assets are sensitive to expectations on US GDP growth, inflation, and interest rates, all of which would be influenced by the outcome of this election cycle, particularly in the event of a Blue or Red Wave. Second, trade policy. A US president's signature can shape the country's commercial relationships with the rest of the world. The US has exerted great influence on the direction of global trade in the postwar era, though more recently it has focused on unilateral actions. Where US trade policy goes from here will be consequential in an era where emerging markets' share of global trade now equals that of the developed world.

For UBS marketing purposes

Finally, geopolitics. For decades, the US has acted as the guardian of the world geopolitical order. And although it has turned inwards in recent years, it continues to shape global affairs. How it handles its relations with China, Mexico, Venezuela, Russia, Iran, and Saudi Arabia, among others, could be quite different depending on who wins the presidency. Whether the US continues to push on unilaterally or leans toward multilateral alliances is also at stake at this election.

United vs. divided US government under Trump or Biden We conclude that an outcome of a unified US government, irrespective of who is elected president, is more likely to result in developments that are more favorable to emerging market assets than a divided government would. An environment of higher fiscal spending, faster economic growth, and higher inflation expectations--which is easier to envision under a unified government--is typically supportive of emerging market assets, even if it comes hand in hand with gradually rising interest rates.

On the other hand, a divided US government--one that makes enacting tax and spending legislation more difficult-- would likely result in a more muted impact. Who exactly takes oath in January therefore becomes more relevant for emerging markets, as the president is not dependent on Congress to decide the nation's trade and geopolitical agenda.

While we can expect the status quo if Trump wins, a Biden presidency may lessen the uncertainty around US external policy, which bodes well for emerging economies. The former VP may be more reluctant to use tariffs as a trade policy tool, and seems likely to take a more globalist approach to address cross-border issues, both of which would also be supportive of emerging market assets.

Main contributors: Solita Marcelli, Alejo Czerwonko, and Michael Bolliger

Product of the UBS Chief Investment Office.

Read the full report ElectionWatch: Emerging markets investment implications of the 2020 US elections, 3 Sept. 2020.

See more election related articles

See our full election coverage, including virtual events with experts and policy makers

Important information As a firm providing wealth management services to clients, UBS Financial Services, Inc is registered with the U.S. Securities and Exchange Commission (SEC) as an investment adviser and a broker-dealer, offering both investment advisory and brokerage services. Advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate contracts. It is important that you carefully read the agreements and disclosures UBS provides to you about the products or services offered. For more information, please visit our website at workingwithus. ?UBS 2020. All rights reserved. UBS Financial Services Inc. is a subsidiary of UBS AG. Member FINRA/SIPC. There are two sources of UBS research. Reports from the first source, UBS CIO Wealth Management Research, are designed for individual investors and are produced by UBS Wealth Management Americas (which includes UBS Financial Services Inc. and UBS International Inc.) and UBS Wealth Management. The second research source is UBS Investment Research, and its reports are produced by UBS Investment Bank, whose primary business focus is institutional investors. The two sources operate independently and may therefore have different recommendations. The various research content provided does not take into account the unique investment objectives, financial situation or particular needs of any specific individual investor. If you have any questions, please consult your Financial Advisor. UBS Financial Services Inc. is a subsidiary of UBS AG and an affiliate of UBS International Inc.

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download