Tag Archives: elections

Macro Outlook & US Market Opportunities

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We are all waiting on baited breath for the results of the US Election. What will the result mean for us as investors? Let’s take a look at a Macro Outlook overview & some key points to take note.

Macro Outlook

Attractive Valuations

• Asian Emerging markets are currently offering more attractive valuations compared to U.S. and other developed markets.

• These attractive valuations present a cost-effective entry point for investors seeking growth opportunities.

Declining Inflation and Interest Rates

• Recent trends indicate a decline in inflation rates across many emerging markets. This trend is expected to lead to lower interest rates over the next 18 months to two years.

• Lower interest rates can stimulate economic growth by making borrowing cheaper, which can boost consumer spending and corporate investment.

Weakening U.S. Dollar

• A weaker dollar can improve trading conditions for emerging market economies by making their exports more competitive on the global stage.

• A weaker dollar can attract foreign investment capital, as returns from these investments may be amplified when converted back into stronger currencies.

Bond Market Opportunities

• Yields continue to be elevated as compared to pre-2022, at the top of its percentile throughout history.

• With interest rates stabilising, fixed income, which exhibits 1/3 the volatility of equities, can act as a defensive portfolio diversifier, and an investor can lock in current yields at above average levels.

• With higher starting yields, expected forward returns are consequently higher and the correlation and statistical significance is high. 

• In this Fed pause cycle, yields have fallen lesser than average, and a mean reversion would see a larger potential for capital appreciation.

What If Trump Wins?

I was going to include ‘What If Harris Wins?’…but it seems like that probably won’t be the case! So what happens if Trump does win?

•Trump’s policy around trade tariffs, tax & immigration would be inflationary.

•There would be less interest rate normalisation, as the Federal Reserve may not be able to cut interest rates as rapidly.

•Reflecting on Trump’s previous presidency, high yield bonds & stocks outperformed due to favourable policies, which were pro-business and pro-markets.

• During his last election, in November 2016, small caps in those initial months performed well, double the performance of the S&P 500.

Graph above shows Small Cap ETFs in 2016

Investment Opportunities

· Many emerging market assets have been undervalued in the past, providing a compelling entry point for investors. By reallocating funds into EM/Asia funds, we can capitalise on these undervalued opportunities, positioning ourselves for substantial growth as these markets normalise.

· In addition, high yield bonds are less sensitive to inflation and have a current distribution yield of 7.8%. 

A Tale of Two Halves: After the Fed rate cut, we see an uptick & opportunity in Asia & EM. We also see a stable & resilient Global High Yield Bond.

Update On Taiwan

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Only one week after I posted about all the elections in 2024 and what this could mean for global geopolitics, Taiwan has elected Dr William Lai as their president.

This may make things difficult, as Lai has vowed to protect Taiwan from China’s aggression. Xi Jinping has labelled Lai as a troublemaker and obviously would not want Lai to threaten his One China policy. Moreover, tensions have risen after the US congratulated Taiwan on the result- something that China claims goes against the US’s unofficial relationship with Taiwan.

Washington also used phrases like ‘diplomacy’, ‘partnership’ and ‘shared interest and values’, which has of course annoyed Beijing even more. The relationship between Lai and Xi Jinping is so bad that William Lai is not allowed to travel to Mainland China or Hong Kong! The two have not been in communication since 2016. Will this mean that China will increase its economic pressure on Taiwan? Will they threaten military force like they did in 2022? Whatever will happen, it’s clear that tensions will surely rise, as Lai is pro Taiwanese independence.

Of course, the result of the US election will greatly affect China and Taiwan, also, so we will monitor closely as the situation unfolds.

A Political Year For 2024

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2024 may be the biggest election year ever, with almost half of the globe voting! At least 64 countries, plus the European Union will be voting and holding national elections. This is a massive year for global politics, so I thought I would discuss some of the notable elections and ones that interest me (don’t worry, I shan’t talk about all 64!).

US

This one probably makes us groan, and I’m sure we’re all bored of hearing about Trump & Biden, but this is arguably the most important election out of the lot. The US is the largest global power, and this election could see a change in USA’s relationship with North Korea, China, Russia and their stance on the ongoing conflicts in Gaza and Ukraine, depending on who wins. Also this is probably the only one where one of the candidates was a previous president who got impeached twice?

Taiwan

I feel like the whole world has been holding their breath when it comes to Taiwan & China, and this election will be no different! The winner of the Taiwanese election will have a tricky balancing act with China, and it’ll be interesting to see if Beijing continues its hold on the island, and whether the imminent threat of invasion will remain.

North Korea

This is interesting, because I didn’t even know the Democratic People’s Republic of Korea had elections (?!). I’m sure the Kim family, who are seen as somewhat deities in North Korea, don’t have an opposition party? What’s even more interesting, is that every election has been given a ‘freedom & fairness’ score (with 0.00 not being free nor fair at all, with 1 being the most free and fair), and North Korea scored higher than a lot of countries! I thought it would score 0.00, but it scored 0.14, which was higher than Venezuela- which I also expected to be low! Countries that scored 0.00 were Syria, Mali, Chad and South Sudan.

India

This election will be one to watch; not only is this election the largest in the world, but India is a rising global power and one of the most populous countries on the globe. The outcome may change not only domestic policies, but also regional politics, particularly concerning China. It may also escalate (or hopefully deescalate) the country’s rising Muslim/Hindu tensions.

Russia

Shockingly another country that’s free & fairness is not at the bottom of the list (although it is above North Korea)! But I don’t think anyone will be shocked when Putin is re-elected and the current trajectory of Russia’s geopolitics continues- i.e. the war continuing.

EU

Sadly, we’ve seen a surge in right wing parties in Europe, and I’m wondering if this will continue into 2024? It seems that a lot of centre-right parties will maintain their current positions, with even far-right parties gaining traction. The main points for discussion will of course be how the EU navigates conflicts, such as in Ukraine and Gaza, along with its green policies and the EU budget. Deficit Rules were suspended during the pandemic, meaning that members were allowed to borrow whatever they wanted to support their citizens, but this is set to be scrapped in 2024, with Deficit Rules being reinstated. Will this create tension between members?

Indonesia

I don’t have a tonne of opinions on this, but I thought it was interesting to note that Indonesia’s elections are only being held over one day! That’s the largest single-day vote, and I wonder how they are going to pull that off in such a large country that has some very remote locations.

Ukraine

Even though Ukraine is under Martial Law, which normally prohibits elections, there has been talk of these elections continuing, as a mark of democratic health. However, this may prove to be too challenging to organise during a war, with safety being a main concern. Either way, Zelenskiy is set to run for a third term, and he will probably win, with his ratings still remaining very high. However, parliament would have to change the law so that Ukrainiens can vote from overseas.

UK

The outlook of British politics has been bleak for a while now, and with the Conservative Party being in power for the past 14 years, some believe that Labour will win the next election, which Sunak has said will be held this year. This is conflicting for me- whilst I am desperate to see the Conservative Party go, and end their reign of austerity, I’m not convinced that the Labour Party will do a better job. Not only that, I have found myself shocked at every vote and election result in the UK for the longest time. None of us thought Brexit would happen, and how naïve we were to think that we would remain. So I’ve learnt to never think that the obvious flaws of the current party, means that they won’t be re-elected!

Whilst this may be the biggest election year ever, it may also be the most challenging for democracy, with many elections being carried out unfairly, or with risk of danger. Not only that, shock decisions and outcomes may shake the geopolitical framework as we know it. It’s going to be an interesting year for sure.

For the full information on the freedom & fairness score, check out Our World In Data: https://ourworldindata.org/grapher/free-and-fair-elections-index and for the full list of elections, along with dates & scores, check out this great article by Time: https://time.com/6550920/world-elections-2024/.