1 Nov 2016
U.S. Presidential Election Special
While surveys such as those conducted by Gallup have shown that these are the most-disliked presidential candidates in modern U.S. election history, there could be investment implications based on whether Democrat Hillary Clinton or Republican Donald Trump wins. We will attempt to provide a view on what sectors may receive a tailwind, or encounter a headwind, depending on the result.
There is little doubt to us that a Clinton win would encourage the debate for further regulating and restricting certain types of financial institutions. Members of the Democratic Party have recently advocated for breaking up large financial institutions and perhaps turning many of them into something more like regulated utilities. How far they would get depends on the makeup of Congress, but it would likely add to headwinds for the sector.
As with many issues, due to Trump’s lack of political history and a lack of policy proposals with specifics, it’s difficult to gauge the impact a Trump win would have on financials. On the one hand, there could be some relief as Trump has indicated that he would reduce regulations and provide a friendlier environment for financial companies. However, uncertainty about exactly what that means could cause some initial volatility. Also, he has expressed disapproval of current Federal Reserve policy and current Fed Chair Janet Yellen, which would also likely add to some uncertainty with regard to future monetary policy.
This sector might be among the clearest beneficiaries from a Clinton victory, in the form of alternative energy. We’ve seen solar stocks jump on government subsidy plans, and drop sharply when rumors indicated those subsidies might be cut. She has been quite clear that she advocates further advances in alternative energy. It is highly likely in our view that a Clinton win would benefit the alternative energy world, at least initially.
Trump has expressed skepticism over the extent of manmade climate change, which would seem to limit the attractiveness of massive government investments in alternative sources of energy to a Trump administration. Further, he has been an advocate for American energy independence through largely traditional sources, including using fracking, to achieve that goal. We believe that traditional energy companies would benefit from a Trump victory.
We’ll end with an area where both candidates tend to at least broadly agree: infrastructure spending. Clinton has proposed doubling spending on infrastructure to $275 billion a year, while Trump has proposed increasing spending by twice that amount. We believe the broad industrials sector could get a fiscal tailwind from both candidates. However, a large caveat, as always, remains in that if the president's party differs from the congressional majority, getting anything of substance agreed upon is questionable at best.
The political component is only one area that affects stock performance, and often it’s a relatively small and unsustainable one, but that doesn’t mean it should be ignored. Being prepared and paying attention to these issues is important for investors who may wish to make some shorter-term moves around the edges of their portfolios.
This material is issued by Charles Schwab, Hong Kong, Ltd. The information provided here is for general informational purposes only and has not been reviewed by the Securities and Futures Commission in Hong Kong.