While Mr Sanders’ pathway to the nomination – and the presidency – is still unclear, the finance sector is readying for a worst-case scenario that could have a disastrous impact on global financial markets.
“In 2019, the main risks to the macro outlook for investors were the trade wars, the global industrial recession and major central bank easing/tightening – issues that are known unknowns,” said Regina Borromeo, senior portfolio manager of global macro at Robeco.
“For 2020, they are the global spread of COVID-19 and the possibility of a Bernie Sanders presidency.”
Mr Sanders aims to break up the six largest US banks – those considered “too big to fail” during the global financial crisis – restore the top corporate tax rate to 35 per cent (as well as taxing stock trades, bonds, and derivatives) and replace private health insurance with a single-payer federal program, funded by a 7.5 per cent payroll tax.
“A Sanders candidacy turning into a successful run for the presidency will add to the risk-off sentiment and volatility, given his anti-big business views, focus on financial regulation and restrictive tax plans,” Ms Borromeo said.
“Medicare for All would have a high material negative impact on pharmaceutical, dialysis and medical device names, along with health care insurance. And it would have a moderately negative impact on medical equipment and supplies. With increases in volatility, idiosyncratic opportunities will arise though and give value investors the ability to pick winners and losers.”
However, a Sanders presidency is still long way from a sure thing. Joe Biden – whose campaign was previously on life support following poor showings in Iowa and New Hampshire – has staged a Super Tuesday comeback, winning around a dozen states.
“Establishment Democrats are unsure that Sanders’ brand of democratic socialism can win the national vote, since he is much more left-wing than the average American,” Ms Borromeo said.
“However, his high-energy anti-establishment and socialist messaging against big business and the wealthy has certainly gained traction, whilst the moderate vote has remained fractured.”
