Despite the chance for a surprise Donald Trump victory in November’s U.S. presidential election, the country’s markets are locking in pricing on the assumption of a Joe Biden win, according to a webinar hosted by Franklin Templeton Investments Corp. on Tuesday.
For Canadian institutional investors, the biggest impact of a Biden administration could eventually be felt in the energy sector, with a candidate seen as more amenable to green energy in the White House, said Julien Scholnick, portfolio manager at Western Asset Management Company.
“Under Biden, we think that focus will change, but the landscape won’t be radically altered in the short term. Over a longer time period, given the changing demand from some institutional investors and increasing focus on environmental, social and governance factors, there’s a lot of reasons why there’s a shift in moving from fossil fuels toward cleaner energy. It’ll take longer, but the trend is already in place and it would certainly be accelerated under a Biden administration.”
Similarly, while it’s assumed a Biden administration would reverse course on the low taxes and deregulation of the Trump era, Scholnick said these changes would likely be delayed in light of the immediate needs of an economy recovering from the coronavirus pandemic.
“In terms of increasing taxes, we don’t see that as an immediate priority for Biden. We think it will come later as the economy is still recovering and he wouldn’t want to lead with that. Rather, it would be about stimulating policies, such as infrastructure spending, at first. We think the near-term boost would be positive for risk assets, specifically various portions of the credit spectrum, including investment grade credit and high-yield credit.”
Jeffrey Schulze, an investment strategist with ClearBridge Investments, cited Barack Obama’s 2008 win in supporting that assessment. “If you go back to when Obama won the White House, the Democrats had 59 seats in the Senate and taxes didn’t go up until 2013. A key reason was that Democrats weren’t keen to raise taxes with a high unemployment rate and an economy that was slowly recovering. It’s the exact scenario we find ourselves in today.”
However, Schulze cautioned that a Biden victory with a divided Congress could have a negative short-term impact on markets, should Democrats and Republicans clash over the size of any potential stimulus package.
“You would still have the regulatory aspects that would come along with a Biden win, but you would likely see the smallest stimulus package. If Republicans in the Senate remain tethered to the smallest package while Biden wants the biggest, it may result in no package or the smallest one possible.”
And with Biden seen as a less volatile candidate than Trump, Scholnick said an overall “lessening of tensions” with U.S. trading partners, particularly China, could be a positive development for global markets.
“Moderating the weaponization of tariffs and rejoining some of these international institutions, such as the Paris Accord and the [World Health Organization], would go a long way to repairing some of the damage that’s been done to those relationships. You would see a more benign trade environment going forward, which would remove the pressure and overhanging uncertainty.
“We don’t know what the election outcome, or any exact policies, are going to be, but if that’s what we’re heading toward, individual industries would benefit.”