As the US heads to the polls, Australian institutional investors are largely unfazed, bolstered by a long-term investment philosophy that typically spans at least a decade.
Speaking to InvestorDaily, Joshua Lowen, insights manager at Super Ratings, said the outcome of the US election is not likely to result in a significant change to superannuation fund investment strategies.
"This is because these strategies are designed with long term investment horizons, usually at least 10 years and therefore, while the result of the election may have an impact on some specific assets that funds invest in, at a strategic level it is unlikely to have a major impact on long term outcomes,” Lowen explained.
However, investment teams will remain vigilant, closely monitoring potential shifts in US policy and their implications for equity markets.
“Funds, and their investment teams or managers, will be thinking about likely changes in US policy and any expected impacts on US equity markets because of the presidential election result, as they will move to capitalise on any opportunities that may arise, however, fund responses in this regard would be similar to those made in response to any major global event,” he said.
For AMP Super, strategies to mitigate risk related to the US election revolve around “scenario planning”.
Speaking to InvestorDaily’s sister title, SuperReview, AMP’s chief investment officer, Anna Shelley, said: “Market conditions are currently benign and there are no explicit risks that we are hedging at this time. The US election is too close to call, so our activities in relation to that revolve around scenario planning”.
“As a result, our risk management is very much a “business-as-usual” approach: we rely on diversification within and between asset classes in the portfolio; we have an agile Dynamic Asset Allocation program, which can respond to market events; and the breadth of experience of our well-resourced investment team”.
Last month, AMP's chief economist, Shane Oliver, weighed in on the potential implications of the upcoming US election. He cautioned that while a victory for Kamala Harris would signal more of the same, a win for Donald Trump could destabilise US institutions and global alliances, potentially leading to political unrest even in the event of a narrow Trump loss.
“A Harris victory would mean a continuation of the status quo,” Oliver said. “Trump would be far from the status quo though.”
Noting that while Trump’s policies in support of tax cuts and deregulation could help boost the supply side of the US economy, on balance his policies – with higher tariffs resulting in higher import prices, lower labour force growth and potential moves to weaken the Fed’s credibility – risk adding to inflation.
“There is also a risk that an even higher budget deficit, with no sign of improvement when US public debt is already very high (at 125 per cent of GDP), will result in a market backlash and higher bond yields. Furthermore, his brinkmanship and erratic policy making style is likely to add to policy uncertainty which could hamper business investment,” the chief economist said.
For Australia, Oliver identified heightened global trade tensions as a major concern under a Trump presidency.
An OECD study suggests that escalating trade wars could reduce Australia's GDP by up to 1.2 per cent. Although Australian exports to the US comprise only 4 per cent of total exports, the nation’s open economy and heavy trade reliance on China render it vulnerable to intensified global trade conflicts.
To hear more from Oliver on the possible US election outcomes, click here.
