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Outlook rattled by Sanders presidency

Lachlan Maddock
— 1 minute read

Markets that are already suffering from the coronavirus outbreak could take an even bigger hit if Bernie Sanders wins the Democratic nomination.

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. 

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“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.”

 

Outlook rattled by Sanders presidency
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