- The 2020 US presidential election’s outcome is now the most-cited risk to markets among fund managers surveyed by Bank of America.
- The November event took the top spot after 29% of respondents cited it as their “biggest tail risk,” while the US-China trade war fell to second place for the first time since May.
- The latest fund manager survey report arrives less than one week after the US and China inked the phase-one trade deal, the first major deescalation of the conflict between the two economic superpowers.
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The 2020 US presidential election’s outcome is now the most-cited risk to markets among fund managers surveyed by Bank of America.
The election’s outcome is the “biggest tail risk” to 29% of fund managers surveyed, the bank said in a note released Tuesday. The trade war was the second most-cited risk, falling from its position as the biggest risk for the first time since May.
The third most-cited risk was the popping of the US bond bubble, according to the team led by chief investment strategist Michael Hartnett.
The latest fund manager survey arrives less than one week after the US and China inked the first deal to deescalate the trade conflict. The phase-one deal lowered tariff rates on one tranche of Chinese imports but kept them the same on roughly $360 billion worth of goods. It also called on China to open its financial sector to US firms, purchase more US goods, and submit a plan to comply with stricter intellectual property laws.
Both economic superpowers are now focused on finalizing a phase-two deal, though Treasury Secretary Steven Mnuchin told The Wall Street Journal on Tuesday that the next agreement may not lift all tariffs. President Trump said last week that the phase-two deal would result in the removal of all duties on Chinese imports.
The trade war dominated surveyed fund managers’ tail risk list since March 2018, when Trump first announced plans to levy tariffs on Chinese goods. Before then, managers primarily listed quantitative tightening policies and political populism as the biggest risks to markets.
The Tuesday report marks the first time the 2020 election is the most-cited risk among those surveyed. Analysts and economists have closely followed developments in the race, particularly the policies proposed by potential Democratic nominees.
US stocks are set to face increased volatility in the months heading into the election, UBS chief investment strategist Mike Ryan wrote in a November note. The healthcare, technology, energy, and financial sectors boast the greatest exposure to wild price swings driven by presidential campaigns, Ryan added, as many Democratic candidates have called for major reform in the aforementioned industries.
Other firms are creating unique investment vehicles for clients looking to make more direct bets on the election’s outcome. Swiss private bank Julius Baer Group is offering up to $40 million of notes that hinge on which party wins the 2020 election. The notes are tied to two baskets of US stocks. The bank’s “Democrat Victory” note tracks Ford, Home Depot, and Walmart, among other firms. Its “Republican Victory” basket tracks stocks including Amazon, Facebook, and Chevron.
The notes mature in one year, and holders will be paid the performance of the included stocks on the maturation date, Bloomberg reported on January 14.
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