The centrepiece events from a UK investor’s perspective are the UK general election on 4 July and the US presidential election on 5 November. We expect a lot of fanfare in both events given the UK’s Conservative party has been in power for 14 years and has been embroiled in controversy for a lot of this time – rich pickings for material for the Labour party campaign.

In the US, Donald Trump is the first former president in US history facing a criminal trial, adding to the spectacle and President Biden is upping the ante on being tough on China.

There is potential for a lot of noise in the media and in markets due to each of these events, so in this piece we consider the investment implications together with how portfolios are positioned.

United Kingdom:

In the UK, the investment implications may not be as pronounced as they have been in the past when we have seen switches between Conservative and Labour governments. There are some ideological differences with respect to Brexit, which could see the UK target a closer relationship with the EU under a Starmer government, but the commitment to public spending from both parties is similar. Moreover, given the market’s fierce reaction to the spending plans of Liz Truss back in September 2022, neither party will want to give the impression of fiscal profligacy.

The main benefit of the election for UK market, almost independent of who wins, could be as simple as removing uncertainty. It would mean a political environment that is more stable, which would mean companies can make longer term investment decisions, which could see higher levels of invested capital in the UK from both domestic and international companies. Importantly, it could also mean international investors see less risk of investing in the UK, which would be accretive to the valuation of UK companies which are substantially lower than their international peers. Indeed, the recent interest in Anglo American and Hargreaves Lansdowne shows this cheapness being recognised.

For EQ portfolios, our exposure to the UK comes in two forms. We have exposure to the UK economy via companies selling products and services in this market. After some weakness last year, we’ve seen an acceleration of growth in 2024 and we expect both parties to be supportive of greater domestic economic activity. The second form of exposure is to UK listed companies (most of which generate the majority of their revenues from international customers). These companies would benefit from the aforementioned reduction in uncertainty, which could attract more international investors to the UK market, resulting in higher valuations.

United States:

The US presidential election lines up a rematch between President Biden and Donald Trump seeking a return to the White House. The easy point to note is the commonality between both candidates (and their respective parties) in the aggressive stance against China and their support for domestic industries. Under Biden, the US passed two major public spending programmes of the Inflation Reduction Act (IRA) and the CHIPS and Science Act, each of which targeted support for US industries. We expect continued public spending support, but in the same way in which the IRA was steadily watered down from an initially proposed $4 trillion package down to a $800 billion package, any new spending initiatives under either candidate are likely to face headwinds given the high likelihood of split control of Congress and the Senate.

The aggression against China is likely to continue with both candidates discussing higher import tariffs on Chinese goods, more aggressively by Mr Trump. The goal of these tariffs is to support domestic producers but given the broader nature of Trumps proposals, they could cause US inflation to increase.

Most importantly for markets, whatever the specifics, both candidates’ policies are stimulative to the economy and involve tax cuts. Current forecasts are for the level of US debt to rise to over 120% of US GDP, which is a level that has caused several other sovereign debt markets to become unstable. The US enjoys a supreme privilege versus other countries, as the world’s default ‘risk free’ asset and primary reserve currency. We don’t expect this to change any time soon, but it is a risk worth noting.

In recognition of how the hostilities between the US & China are set to continue and potentially deteriorate, we have reduced our exposure to Asian equity markets in all EQ portfolios. There will be some winners from this with India expected to reap the greatest rewards, so we are advocates of taking an active investment approach in this region. Within the US itself, government policy support and opportunities from the proliferation of artificial intelligence should be supportive for the earnings of technology related companies, but given ongoing domestic economic growth, we see broad support for corporate earnings in the region, helping a wide array of our holdings.

Asia:

There are important elections happening further afield as well, notably in India, the world’s largest democracy. Prime Minister Narendra Modi is seeking a third term in office, with economic policies focused on boosting manufacturing, attracting foreign investment, and promoting digital transformation. A continuation of his leadership could bode well for sectors like technology, infrastructure, and manufacturing.

Several of our Asian focused investments stand to benefit from their mostly overweight exposures to India.

Overall:

While the political landscape has the potential to shift dramatically and make lots of headlines this year, the general direction of travel for investment implications is either unchanged from the last several quarters or has shifted marginally in the same direction.