Joe Biden was declared the winner of the US presidential race and is likely to take office with a Republican Senate, says Evan Brown, head multi asset strategy at UBS Asset Management in his Macro Monthly “The stage is set for sustained US dollar weakness and the continued outperformance of emerging market assets.”
“This scenario is likely to result in sufficient fiscal support for an economy still facing pandemic-induced headwinds, although less than would have been the case under a united Democrat government. The incoming president is likely to pursue a more predictable foreign policy. Major tax increases that would have been a part of the full set of ‘Blue Wave’ policies can be largely ruled out, in our view. And the potential for an upside surprise in fiscal stimulus could further boost activity, as control of the Senate is yet to be decided, as discussed further below.”
“To be sure, the election is not the only powerful market catalyst competing for investors’ attention. In particular, seasonal waves of COVID-19 threaten to delay the timing and magnitude of the broad earnings recovery. But we expect increased visibility into the continued healing of the global economy, coupled with more progress towards an effective COVID-19 vaccine, to emerge as the dominant drivers of price action.”
“We have the highest conviction in sustained dollar weakness and the outperformance of emerging market assets. A diminished threat of tariffs under the incoming administration should reduce much of the protectionism discount in foreign currencies and reverse prior US dollar strength. The lack of an aggressive fiscal impulse stateside will keep real yields subdued, in our view, also contributing to a broad downdraft in the dollar. We deem a broad swath of emerging market assets – from foreign exchange, to equities, to dollar-denominated debt – to be particularly attractive in this backdrop.”
Here you'll find the full report 'US election ends, global expansion continues' from UBS Asset Management.
Vaccine breakthrough
Here you'll find UBS Asset Management's flash commentary ‘Vaccine breakthrough bolsters procyclical positions’.
“News that this particular candidate appears to be successful is especially important, as it has the highest expected supply relative to peers. However, there is a note of caution on this front: the firm materially downgraded production estimates for both 2020 and 2021. This is a reminder that logistical concerns related to production, storage, and distribution are manifold and supply constraints could threaten to introduce delays that impede the normalization process. It is also unclear how long the vaccine might provide immunity.”