Julie Baillie’s Post

Transcript

2024 was marked as the year of the election, with over 2 billion people going to the polls across 50 countries. We're now arguably approaching one of the most globally significant of these in terms of potential impact on economies and markets, with the people of the US going to cast their votes on the 5th November. At HRIS, we've been looking at what this could mean for markets and investors, and today I'm really pleased to be joined by one of our Client Portfolio Managers, Kameel Kapitan, to share our thoughts. Hi, Kameel. Hi, Kate. Nice to be here today. Yeah, lovely to see you. So Kameel, we'll get straight to it. With now just two months to go, what is the landscape looking like? We saw Trump and Harris go head to head in their debate this week, seemingly Harris coming out on top. But do you think it actually provided any further clarity? The short answer there, Kate, is no, not really. I mean, it's still just too close to call. Like you said, it was an interesting debate, sometimes fiery at points. And the general consensus is that you said Harris came out on top and her camp quite quickly called for another election, sorry, another debate pre-5th of November election, which just shows you the indication of how they felt it went. You've had celebrity endorsements with Taylor Swift minutes afterwards, throwing her support behind Harris. But like you said, Kate, just under two months to go till the 5th November, which in the world of politics is an absolute lifetime. What we can say is it will go down to the wire and it will be a race that likely be determined by seven key battleground states, the likes of Georgia, Arizona, Pennsylvania, where the debate was held this week. And they're just too close to call. In terms of what it means for markets, ultimately that uncertainty, it will likely just be more volatility in the lead up to the elections as investors just react to changes in news and the polls. That's really interesting, and I guess quite different to what we saw here in the UK in the lead up to June, when you had such a clear front runner going into the polls. So no real clarity as to outcome, which I guess is no great surprise to anyone that's followed the journey so far. I suppose naturally then attention turns to thinking about what actually happens depending on who gets elected. Does it really make a difference if it's Trump or Harris? I'll put that one to you, Kameel. What really is the difference between a Democratic or a Republican presidency? I'll answer that with a number. It's 700. Any idea what that might represent? No, no idea. That's the number, the total number of campaign promises made by the successful candidate over the last four presidential elections. And the punchline, less than half of those campaign promises, Kate, have made it into law. I mean, it's an incredible statistic, and it just shows that what candidates or politicians say they will do prior to election versus what they can do once elected can often be quite different. And ultimately, it will just boil down to the level of control a President has. So whether Harris or Trump have full control in terms of the House of Congress, in which case they could push through more of their party policies or whether it will be a divided government such that there's a bit more cooperation needed, which could lead to a bit more moderate policies being ultimately made into law. Look, there are differences between the candidates. We saw that in the debate this week in key areas like the economy and taxes, trade, immigration with the more restrictive immigration potentially under Trump, and energy where there's more of a focus on clean energy under a Harris administration, potentially. But ultimately, because of that dynamic in terms of what can and can be enacted, at this stage, Kate, it's just impossible to say what those exact differences would be. Yeah, and I think that's the challenge right there for investors, really. Just the degree of uncertainty with anything in politics makes it really difficult to then try and draw straight lines to market impact. It can make it really tricky. Kameel, that doesn't mean I'm not going to ask I think it's the question everyone wants answered. What could this all mean for markets? Yeah, no, absolutely. I'll give that one a go, Kate. But what I would say to start with is we'd caution against making significant tactical portfolio decisions on the potential outcome of any election and the US election on the 5th November is no different. It will dominate news, of course, but actually, when it comes to markets, elections, their impact tends to be pretty fleeting. There's so many more factors at play, and we've seen that in the last few years with the unexpected events, COVID, Russia/Ukraine, and the impact that's had on interest rates, inflation, growth. That said, I'll maybe come off the fence a little bit here. Look, there will, of course, be an impact depending on the outcome of the election, and markets will have to contend with that. It might be quite useful to think about it in terms of the potential scenarios that I alluded to before, and you can really break that down into three possibilities. You've got a Republican clean sweep, Democratic clean sweep, or a divided government. If we take them in order in terms of that impact, Republican clean sweep, that's a change in government. So markets might see a bit of initial volatility as they digest that. But maybe over the short to medium term, they could find relief in a lower tax environment and reduce regulation, perhaps under a Trump administration. But on the flip side of that, there could be headwinds from what some might say are more inflationary policies. Think universal tariffs for a Trump administration, which could impact the Feds ability to lower interest rates over the near term. Switching to the second scenario in the Democratic clean sweep. Well, that's a continuation of the existing government. So actually markets could react favourably in the immediate term should that scenario play out. But on the flip side, markets could then, over the short to medium term, be impacted by potentially higher taxes should Harris pare back some of the tax relief for corporations or higher income individuals, and also have increased debt issuance if they were to progress with their spending plans in areas such as clean energy. The third scenario, the divided government scenario. But actually, historically, markets have reacted pretty favourably to that, which might be counterintuitive for us here in UK, where coalitions, divided governments have negative connotations. But over the pond in America, there's that perception of stability in terms of the policy that brings to the table. The big caveat there is ultimately that just depends on the level of cooperation and harmony between the two parties. What you want to avoid and what markets desperately want to avoid in that scenario is the dreaded political deadlock that ultimately just leads to increased volatility. We've seen that play out in markets in recent times. We just have to think back to the debt ceiling showdown in the early part of last year. Yeah, so there you go, Kate. I wish it was more black and white, but it really is a case of navigating through the grey here with potential ups and downs in markets, irrespective of what actually will play out. Yeah, so much to consider there, Kameel. And probably so many questions off the back of those points you've covered there. I guess if I could ask you for one key message to finish on to take away, what would it be? Yeah, one key message. Well, I'll just keep it simple. It's stay long-term focused and invest in robust, well-diversified portfolios. That, as you know, Kate, that's core to our philosophy here at Hymans Robertson Investment Services, and what really, we really believe will help advisers and their end clients navigate the short term election cycle to deliver those successful outcomes over the longer term. It's brilliant. Thank you, Kameel. It's been fascinating to talk through with you. No, not a problem.