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All bets are off in the US Elections

November might seem just around the corner, but in political terms it is a lifetime away. Thomas Fitzgerald, co-manager of the Amity International Fund, looks at what the upcoming US presidential elections might bring investors:

History suggests in the absence of a recession, presidential elections in the United States strongly favour the incumbent. Out of only five incumbent presidents losing re-election, three of these were during a recession. 2020 is also set to be a recession year, and based on recent poling data, former Vice President Joe Biden appears well positioned to become the 46th President of the United States.

Public sentiment has changed materially over the last few months with approval ratings for President Trump dropping significantly. Odds makers currently give Biden an approximately 58% chance of winning the election. However, at this stage, market participants should be cautious about drawing a firm conclusion on the election. COVID-19 outbreaks could significantly affect voter turnout, particularly in states that do not have easily accessible vote-by-mail policies.

While it is difficult to determine the probable outcomes at this stage, the impact that any president can have on the economy and market depends on their ability to enact legislation. To be able to put in place more controversial policies, control of both the House of Representatives and the Senate is necessary. It is difficult to see President Trump regaining control of the House of Representatives, were he to win. Similarly, it is difficult to see the Senate shift to a Democrat majority. Therefore, a divided Congress appears the most likely outcome.

While political gridlock is not a desirable scenario, it may comfort investors to know that it could act as a considerable restraint on the more radical proposals on both sides. Regardless of the election outcome, it seems unlikely the trade conflict with China will be fully resolved, which may prove to have a greater impact on global investment markets than the composition of Congress or the governing administration.

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