Magellan co-founder and chair Hamish Douglass has outlined areas of focus for investors as the US election creeps closer, warning there are likely to be days or even weeks of volatility until a president is confirmed.
Speaking at the Morningstar Investor Conference on Friday, Mr Douglass spoke about his expectations for the upcoming US election – including a period of turbulence in the immediate aftermath.
“There’s a distinct possibility here we could get an ugly contested case here, where we just do not know the result for days or even weeks,” he said.
Postal and pre-polling votes have come in record numbers, but counts will vary state to state, where some require the votes to be tallied on the night or others can leave a window for up to six days following or longer. There are court battles being fought from both the Democrat and Republican parties, contending how long after election day votes can still be received.
President Donald Trump has also applied pressure against postal votes, raising fears around voter fraud, despite little evidence.
“If we get into a very close situation in some of these swing states and it’s coming down to a few thousand votes, we could well be caught up in the courts and we could see protests,” Mr Douglass said.
“There we just have to expect, if it’s going to be a close election, that we’re going to have a period of uncertainty and markets don’t like uncertainty. But we will get a result. So if there’s volatility in the markets because there’s no result, I would say everyone stay calm, a result will be called.”
Should there be a clear result, with little contention, Mr Douglass expects Joe Biden to claim the White House, as signalled by the polls (although they aren’t bulletproof, as shown by the 2016 election).
Mr Biden has presented as fairly moderate in his politics, with the Magellan chair not being concerned about radical legislation slipping through under his potential presidency, aside from initial volatility.
The Senate is currently dominated by Republicans, with 53 Republicans and 47 Democrats – although 35 senators are up for election on Tuesday. The seats up grabs currently consist of 23 Republicans and 12 Democrats.
Should the Senate remain majority red, a Biden presidency would need to surpass opposition when attempting to pass legislation.
“If the Republicans keep the Senate, and it’s much closer in the Senate race than it is in the White House, not much is going to happen from an investment perspective,” Mr Douglass said.
“Because there’s going to be a very strong check and balance on anything the Democrats do, effectively the Republicans could block it if they retain the Senate. In those cases, we will probably get calmer international relations.”
However, even if the Democrats take the Senate, they would need at least 60 per cent of votes to control a lot of legislation, under the supermajority requirement.
Democrat policies for investors to watch
Regardless, investors should be focusing on certain areas for the long-term, as defined by Mr Douglass.
“Clearly the Democrats are going to have an environmental policy there, where they’re wanting to want to replace over time, a lot of coal fired generation, much more renewables,” the Magellan chair said.
“From our point of view, we’re very positively skewed. We actually own a lot of utilities in our portfolio in the United States and those utilities would have an acceleration in investment in replacing their generation with more renewable energy, they’re already on that pathway but an acceleration would increase their earnings over time.”
The Democrats are also expected to have different policies on healthcare, leaning towards making a public option available and regulating drug prices. Investors should be cautious, Mr Douglass said, as Magellan has sold down its exposure in the sector, foreseeing the likelihood of a Biden victory.
Investors should also keep an eye on the Democrat proposal to increase US corporate taxation from a rate of 21 per cent to 28 per cent. It had been 35 per cent prior to Trump’s presidency, but he reduced it to its current rate.
The planned increase to the rate could be a headwind of 7-8 per cent to corporate earnings.
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].