All eyes appear to be on the US presidential election, but investors don’t seem to be doing much other than watching.
In a survey of 907 global investors, Sreekala Kochugovindan at Barclays found that geopolitical risk — most notably the US presidential election — has become the number one concern on the minds of money movers. Despite these concerns, most of the same investors are not doing anything to change the way they are allocating capital before the November 8 vote.
“Our last survey was conducted just ahead of the UK vote to leave the EU and since then, the proportion of respondents concerned about geopolitical risks has edged even higher and has been voted the number one risk for financial markets,” said Kochugovindan is a note to clients on the results of the survey.
The primary concern of markets entering the year was instability in the Chinese economy and its impact on emerging markets economies. In the lead-up to the UK’s vote on its European Union membership, political risks grew as a focus and have now surpassed the China concern.
To be fair, weak developed market growth still remains as the second biggest concern, and only a plurality and not a majority of investors cited political risk as the number one problem. However, given the trend, the shift to political worries is certainly notable.
Thus, you may ask, how are investors dealing with this increased uncertainty regarding the election? Honestly, they aren’t doing a whole lot.
“Only a minority (18%) of investors have shifted allocations ahead of the event, however, 35% stand ready to trade around key dates signalling that a marginal majority expect election related volatility,” wrote Kochugovindan.
Now the lack of movement isn’t a huge surprise, as many investors have long-term strategies that they expect may not be materially impacted by the outcome of the race. Additionally, a majority of investors surveyed said that the election will have little impact on US equities or bonds.
Of note, a solid majority — 62% of those surveyed — favoured a Democratic president and a divided Congress. Investors surveyed believe there is a roughly 50/50 chance of fiscal stimulus if Clinton is elected and a 63% chance of stimulus if Trump wins, though it is not clear whether that is due to policy differences or the chances of partisan gridlock.
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