Investment Strategies

The Race For The White House - A View From Lombard Odier

Tom Burroughes, Group Editor, London, 23 March 2020

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In all the turbulence today it might be easy to forget that there's a Presidential election going on in the US. A wealth management house considers the investment and asset allocation implications of the polls.

(A previous version of this item appeared last Friday on Family Wealth Report, sister news service to this one.)

In taking a much-needed break from the industry preoccupation with COVID-19, this publication is pleased to share these thoughts from Lombard Odier on the implications of the upcoming US Presidential election in November this year. While the economic disruption may affect the result, there are, we shouldn’t forget, many other moving parts in play. There are significant tax implications, for example, from what sort of result happens in November. Here are thoughts from Stéphane Monier, chief investment officer at Lombard Odier & Cie

The editors are pleased to share these insights and invite readers to respond. The usual editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

The race to challenge Donald Trump for the White House in November has narrowed. Joe Biden, vice president to Barack Obama for eight years, staged a political comeback last week by winning 10 of the 14 state nominations decided on “Super Tuesday”. That sets up Mr Biden as the Democratic leader in the contest, but may be the start of months of mudslinging.

Donald Trump, Joe Biden, Bernie Sanders. The choices for president before American voters in the months ahead have rarely been so politically diverse, despite all three main candidates being white men in their seventies. 

Just a month ago, Mr Biden, who first made a presidential bid in 1987, placed fifth in the New Hampshire primaries on 11 February 2020 and found himself written-off as a Democratic contender. Last week, Mr Biden won six states by wider margins than forecast, as well as states such as Texas and Massachusetts that forecasters expected rivals to win. That gives Mr Biden 664 of the 1,991 state delegates needed to secure the nomination, compared with Mr Sanders’ 573. Another 352 delegates will be decided in a further six states on March 10, 2020. 

Until Super Tuesday, so-called because the day sees one third of Democratic Party delegates vote, senator Bernie Sanders led the field. Mr Sanders did win California, Colorado and Utah, plus his home state of Vermont. California’s size, with 415 delegates, more than half of which were won by Mr Sanders, makes it likely that he will contest the nomination all the way to the Democrats’ July convention where the candidate is finalised. 

The initially diverse field of Democrat candidates lost four campaigners last week when they withdrew from the race: Mike Bloomberg, Pete Buttigieg and Amy Klobuchar, all of whom have since endorsed Mr Biden. Mr Bloomberg’s resources and reiteration that his priority remains to unseat Mr Trump, will surely make a difference to Mr Biden, who did not spend a campaigning dime in the five states he won last week. Elizabeth Warren finished third in her home state of Massachusetts and, at the time of writing, had not endorsed either remaining candidate. 

Left or centre?
The choice for Democrats is between traditional centrist politics, or more radical reform. Mr Sanders, characterised as appealing to more young voters, is campaigning on a promise to provide universal healthcare, a minimum wage, cancel student debt, provide free public college and university tuition, federal job guarantees and a “Green New Deal” to tackle carbon emissions. “We have options out there that will pay for that,” he said recently, including higher taxes. Specifically, he has called for higher tax on capital gains, and a raise in the corporate tax rate from 21 per cent to 35 per cent. 

Mr Sanders is a longstanding critic of globalisation, free trade agreements and their impact on American workers. Nevertheless, compared with the current administration, we would expect trade tensions under Mr Sanders to lessen. Still, higher corporation and wealth taxes, “medicare for all” and tighter banking supervision would not only be difficult to pass through a split Congress but would also be interpreted as a challenge to corporate profitability and perhaps make US assets less attractive. The short-term impact on the dollar would be negative. 

Mr Biden’s campaign presents a pitch for a return to political normalcy after nearly four years of bitter partisanship under Mr Trump. Mr Biden would be the most predictable president for markets. He is campaigning on a platform that would reverse Trump’s withdrawal from multilateral commitments including trade, return relations with China to a more predictable path and re-engage with Iran over nuclear proliferation. He would almost certainly show more respect for the Federal Reserve’s independence. Domestically, he is also likely to strengthen the existing Affordable Care Act, known as “Obamacare”. 

Mr Biden has also called for an increase in the corporate tax rate to 28 per cent, less than Mr Sanders, and to end the lower tax rate treatment for capital gains and dividend income. 

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