Election, lockdown worries weigh on client portfolios

In a statement, Centrepoint Alliance said the close result in the US election would drive further uncertainty for markets, as it was likely neither candidate would have full control of both houses of government.

“If we are unable to get a clear winner by the end of the day this could be a long-winded ride for investors,” the group said.

“Without a clear winner it could be days if not weeks before the final count is completed, which may result in a volatile ride for investors as the lack of certainty weighs into markets.

“Whether it is a Trump win or a Biden win, the president who controls the senate will be better placed in getting their policies off the ground. The alternative will leave the future president with an up-hill battle which would result in further negotiations and stalemates with regards to new policy, providing markets with less peace of mind.”

The group said that certainty around US policy going forward would be key to reducing volatility in international equity markets, as fiscal stimulus was the key weapon at the US’ disposal to fight the COVID-19 crisis.

“Given the strong positive moves by the market prior to the presidential race, it clearly shows that the market is less concerned with who wins the election, so long as the market receives the certainty it so desperately wants,” Centrepoint said.

“The US Federal Reserve has used up any ammunition it had with monetary policy given the low interest rate, leaving fiscal policy the only avenue for the US and market confidence. There is the added headwind with COVID-19 being out of control in most states as they lead into winter.”

Centrepoint said the take-outs from the election for advisers were that strategic asset allocations (SAA) may need to be adjusted away from global equities given that investors were likely to be “in for a rough ride” for some time to come.

“What this election may expose is whether we as investment professionals need to take a closer look at our asset allocation,” the group said.

“Should advisers begin a discussion around their clients’ exposures to international shares and Australian shares? Do advisers continue with the long-term SAA and maintain an overweight to international shares, or do they deviate slightly from the SAA and reduce their clients overweight in certain markets?

“Given the levels of uncertainty and the growing concerns with COVID-19 if there is no vaccine, investors may be in for a rough ride.”