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Next week will be a blockbuster – pointers on what to look out for

 

“Brace yourself, next week is gearing up to be a blockbuster. In what has been one of the most controversial election campaigns in recent memory, the US will be going to the polls next week to elect the next president of the United States. At the moment, polls suggest Democratic candidate Joe Biden is edging just ahead of Donald Trump in a number of swing states. Yet if the last presidential election taught us anything, it was that polls can also get it wrong.

“Investors seem to be aware of this fact, heeding the lessons from 2016. Trump’s “shock victory” triggered sudden market convulsions followed by an equities rally in response to his extensive corporate tax cuts. Those who assumed a Clinton victory were hit hard by the result, and were reminded that in the investment world, nothing is certain. As a result, the majority of investors and wealth managers seem to have adopted a “wait and see” approach for now, minimising their risk exposure so that they are not adversely affected by either a Trump or Biden victory.

“Should Biden win, I would expect investors to flock to green energy companies listed on the Dow Jones. He has been extremely vocal in his support of renewable energy, and off the back of his campaigning, the First Trust Nasdaq Clean Edge Green Energy Index Fund is now trading at a record high.

“In the event of a Trump victory, I’d anticipate a short-term dollar bounce as the market prepares for the continuation of the US-China trade war. However, the Dow Jones has positively responded to Trump’s corporate tax cuts, and I would expect this to continue over the long-term.

“The election also comes at an interesting time. COVID-19 cases in the US and Europe are rising, and there are fears we could see a second period of tight lockdown measures. Add to the mix the Bank of England and Fed Reserve having separate meetings next week to no doubt discuss the potential need for negative interest rates, and it is clear that the global markets will remain in a volatile state for the rest of the year.

“My advice for those nervous about next week’s events is to remain calm and not make any rash decisions in a bid for short-term gains or to mitigate sudden loses. While the financial markets will react to these events, it is important to have a long-term perspective. Understanding how currencies, commodities and financial markets are likely to adjust to a changing geopolitical environment is key when it comes to effective investment decisions.”

Giles Coghlan is Chief Currency Analyst at HYCM.

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