The US presidential election results may have a momentous impact on the world, including equity markets -- be it a Donald Trump or a Joe Biden victory -- at least in the short term.
As per a study conducted on the US equity market (S&P 500) performance during various presidential terms, the results show that over the last 3 decades, equity markets have performed better on average under Democratic Party presidents.
This is contrary to the popular belief, as Nitin Shanbhag, Sr. Executive group VP- Motilal Oswal Private wealth management, says, that Republican Party presidents are better for markets given their affinity towards cutting taxes and easing regulations.
“However, averages do not really convey the true picture as there is no linear visible trend that market performance is directly linked to the election outcome,” he opines.
Given the prevailing scenario, irrespective of who wins, it is clear that global central banks will continue to provide some sort of stimulus and global governments are likely to run high fiscal deficits, for a major portion of the next one year.
This means a continuation of the current regime of lower interest rates with investors seeking incremental returns through high yield debt and equities. Consequently, gold will also continue to be a preferred safe-haven asset class.
Hence, Shanbhag believes that rather than basing any investment decisions on the US election outcome, it is prudent to focus on fundamentals viz. earnings growth outlook and valuations.
“Equity markets are discounting machines and hence a lot of the potential macro recovery has been priced in and going forward it is likely to be more sector/stock specific. A staggering investment approach would be preferable with a bias towards multi-cap strategies,” he suggests.
For fixed-income allocation, while portfolios should continue to be biased towards AAA-rated instruments, Shanbhag advises investors to selectively look at bonds, NCDs and select high-yield debt funds.
Talking about mutual fund investment, Sahil Arora - Director, Paisabazaar, says that in case there is any steep market correction because of the US election results, equity mutual fund investors should treat such correction as an opportunity to buy mutual funds at lower valuations.
"Even those having SIPs in equity funds should try to make lump sum investments in a staggered manner. Doing so will allow them to buy more units at much lower valuations, which will in turn average their investment cost and can even help in reaching their financial goals sooner," he suggests.
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