What impact would an election victory by Donald Trump or Kamala Harris in the US have on the markets? And what about a new government in France? Investors should not let such speculation make them nervous — and above all should not let it dictate their investment strategy.
Who will win the US presidential election in November? By the time of the assassination attempt on Donald Trump on 13 July at the latest, the 78-year-old was for a while being treated as a more or less certain winner. But when Joe Biden withdrew his candidacy and the news came that incumbent Vice President Kamala Harris intended to enter the race for the office, that certainty suddenly wasn’t so great anymore.
In the media and on the markets, there has for a while been fierce speculation about the outcome of the US election in November. How will it affect the US stock market in general and individual sectors in particular? With the so-called „Trump trade“, attention falls, among other things, on the oil industry. That’s because the Republicans rely more heavily on fossil fuels than the Democrats. It is also assumed that smaller companies focused mainly on the US market would benefit from Trump’s deregulation and protectionism plans.
Fairly soon after it became known that Harris rather than Biden was running for the presidency, there was suddenly talk of a „Harris trade“ too. Mentioned in this context were, for example, companies from the renewable energy sector. Yet Harris had not even spoken concretely about her possible economic policy course at that point.
Avoid speculation
„Speculating on particular market developments — whether in connection with election results or for any other reason — is always highly risky,“ emphasizes Prof. Dr. Stefan May, Head of Investment Strategy at Quirin Privatbank and quirion. „It has nothing to do with a sound investment strategy.“ Even if the „right“ candidate wins the race, that by no means implies that prices will actually develop the way you had assumed beforehand.
For example, it is an open question whether certain campaign statements will actually be followed by corresponding political decisions. What is more, while political decisions can move individual sectors and entire markets, they are of course not the only factor. From the economic cycle and the interest rate level to current market valuations and individual corporate decisions, all sorts of variables can play a role.
Politically driven markets have short legs, as the saying goes. „That doesn’t mean politics has no influence on the markets — it certainly does,“ May stresses. „But this influence cannot be calculated in advance.“ And because that is so, in May’s view it is also not a good idea to position yourself early in particular sectors or markets ahead of elections, or to exclude them from your portfolio. „Because then investing turns into a game of chance.“ It would be pure coincidence if the speculation paid off. „Most of the time, it’s not worth getting involved in that.“
Political course-setting, in France too
No one can see into the future. That applies to the consequences of the election outcome in the US. But also to the consequences of the government formation still pending in France, the second-largest economy in the European Union. After the electoral success of the right-wing Rassemblement National in the European elections and in the run-up to the parliamentary elections that have since taken place, the media had already warned of a possible new financial crisis. French bonds came under pressure, and the euro also gave up a little ground. That the left-wing electoral alliance Nouveau Front Populaire would later win the most seats probably no one suspected at the time.
None of the political camps — not even that of President Emmanuel Macron — was able to secure an absolute majority in the parliamentary elections. How things will proceed with the formation of a government in France was still open at the beginning of August. „One important question will be whether France continues its previous course within the European Union, or whether a new government moves away from it,“ May explains. „Though I do note that, with the war in Ukraine, the EU has overall moved closer together.“
May does not rule out that French bonds could come under pressure again if EU-critical forces gain the upper hand in France. But he also points out that central banks have often proven to be successful firefighters in crises. „There are signs that the European Central Bank has spread a kind of ‚protective shield‘ over bonds from euro area countries.“
Investment success through diversification
Whether it’s the election outcome in the US or the formation of a government in France: with the right investment strategy, you don’t have to rack your brains over either of them. „Investors should aim for the most efficient diversification possible and otherwise concentrate on their individual risk appetite and their own investment horizon,“ May observes. „Studies have shown time and again: diversification lets you optimize the balance between return opportunities and risks.“
quirion’s global ETF portfolio is diversified according to scientific criteria and, via ETFs, contains around 8,000 stocks from more than 70 countries. Depending on the investor’s risk profile, bonds are also mixed in with the equity ETFs across the various strategies. Even the global 0/100 portfolio, which contains no equity ETFs, is broadly positioned and currently holds, via ETFs, bonds from around 3,000 issuers. „With a global portfolio like this, you make use of the capital markets’ return opportunities over the long term while exposing yourself only to the risks necessary to do so,“ May adds.
