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Tracking the markets leading up to, and following, the U.S. presidential election; responding to Canada's cooled economy; and is it time to look at emerging markets?
“U.S. equity futures extended gains Thursday, following the biggest post-election surge on record, as investors positioned for a decisive result from the presidential race for Democratic challenger that looks to be tempered by Republican control of the Senate.
“Former vice president Biden, 77, is holding on to a 264 to 214 lead in presumptive Electoral College votes, with tallies still to be confirmed in key states such as Georgia, Nevada and Pennsylvania, all of which would need to turn for President Donald Trump to give him any chance of reaching the 270 Electoral Vote threshold.”
The markets (not liking considerable change and uncertainty) also appear to be in favour of the status quo with respect to the Senate races. It appears that the Republicans will continue to control the Senate as the Democrats continue to control the House of Representatives. (If you’d like to dig deeper, here’s a post from the White House that explains the legislative process. And MoneySense columnist Bryan Borzykowski outlined what a Trump or Biden presidency might mean for Canadian investors.) Things could change by the time you read this article, but it appears that we are likely to have a new president in the U.S. with no change in control of the Senate or House. For now, we are enjoying the biggest post-election stock market rally. And certainly there could be a last minute surprise or two. After all, this is 2020: Surprise is the norm.“That marked the fourth straight month of growth following the steepest drops on record back in March and April amid pandemic lockdowns. August’s figure was down from the 3.1% expansion seen in July. Preliminary information from Statistics Canada indicates real GDP was up 0.7% in September, with increases seen in the manufacturing and public sectors, as well as in mining, quarrying and oil and gas extraction.”
However, we are still about 5% below February levels for GDP. Full economic recovery is likely not possible until we have COVID-19 under control. There are still so many sectors that are mostly closed for business, or are operating at greatly reduced capacity. There is a cap or ceiling on the level of the total level of economic activity. When we made sense of the markets for the week of July 26, we discussed how small business was on the ropes. That includes the restaurant industry, which continues to struggle under various levels of restrictions and closures for indoor dining across Canada. As we head into winter, and the loss of patio traffic, restaurants may face additional pressure. Canada’s economic recovery might also run into Old Man Winter.“BlackRock upgrades emerging market equities to overweight, citing the rising probability of Democratic sweep outcome with larger fiscal spending, more stable foreign policy, a weaker U.S. dollar and negative real rates poised to benefit developing market assets.”
And on the fixed income side…“The asset manager also upgraded Asia fixed income to overweight, saying China and other Asian countries had done better in containing the virus and are further ahead on economic recovery.”
And more than just the short term potential advantage of developed nations, many portfolio managers feel that developing nations offer greater diversification and great long term total return potential compared to developed nations. You might look to Forstrong Global for some wonderful research and commentary on the future of global economic growth. From their report Super Trends: Around the world in 80 minutes… “Today many investors are experiencing their own existential struggle with emerging Asia’s economic rise. On the one hand, the region—which we classify as China, India, Taiwan, Korea, Indonesia, Malaysia, Philippines, Thailand and Vietnam—has created enormous growth around the world. China alone has delivered roughly half of all global GDP growth over the last decade. This has been a crucial prop to a growth-deficient world.” Now, that might not mean that you abandon your non-North American developing markets exposure (I’ll leave that up to you), but you might consider shading in some developing market exposure by way of ETFs. And you may decide to add both equity and fixed developing market funds. If you’re searching for a Canadian robo-advisor and you like that developing markets idea, you might look to ModernAdvisor. Their portfolios employ that developing market theme with developing market equity and fixed income ETFs. While I have not made any major portfolio moves in quite some time, I am considering shading that equity and fixed income exposure.Share this article Share on Facebook Share on Twitter Share on Linkedin Share on Reddit Share on Email
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