US Elections – Consequences, Complexities and Disruptions

Article from Beat Wittmann, Chief Investment Strategist @ Key Family Partners


US Elections – THE 2024 Global Event

Recent presidential polls indicate an ever closer race between candidates Kamala Harris and Donald Trump. Unfortunately, this situation leads to a sharply increased risk of a contested US election. It is and has been our stance that this would be the worst possible outcome regarding the geopolitical, economic and capital markets outlook as there would be a phase of heightened political and possibly judicial complexity, economic incertitude and capital market volatility.

A Kamala Harris win would largely mean a significant degree of policy continuity and predictability. Donald Trump has made it his personal trademark to be egocentric, deal-driven and unpredictable. A Donald Trump win would jeopardize the democratic order in the US and abroad, in style and in substance. The very idea to end the wars in Ukraine and in the MidEast by a single-handed Trump style deal is illusionary.

A Trump Win – Divisions and Disruptions

A Trump win, particularly coming with a Republican parliamentary majority, would lead to highly disruptive outcomes in geopolitics and economics antagonizing enemies and alliance partners alike. But clearly, expect that Trump will do whatever it takes to keep his MAGA base, US consumers and US investors happy!

Trump would be a lucky winner, indeed, as his ambitions and objectives would be strongly facilitated by a Biden/Harris inherited top positioned US economy at the cusp of an unprecedented productivity cycle. Add full strategic autonomy regarding energy supply in the US, technological lead, aerospace and defense supremacy, dominance of global capital markets via its leading financial sector and the US Dollar.

2024 IMF and World Bank Meetings – Scenarios Clashing with Realities

The IMF’s World Economic Outlook (WEO) is a must read for its quality, empirical comprehensiveness and relevance. However, the forecast for a soft landing and the extrapolation of plus 3% positive trend growth for the global economy will very likely clash with escalating geoeconomics realities – particularly in the case of a Trump presidency leading to geopolitical confrontations as well as social and political unrest domestically and trade wars.

Global capital markets are already priced for a soft economic landing and falling interest and inflation rates. However, soft landings are the exception to the rule – and that will be tested with any US policies engaging in punitive tariffs and protectionism in an environment of ongoing wars, global imbalances, sovereign debt overhangs and huge needs for investments and global cooperations regarding climate change.

BRICS Summit – Hosted by Putin and Dominated by Xi Jinping

Once more the BRICS summit was big on headlines, claims and photos, yet, light on substance and even lighter on actions. This time, it was hosted by Putin and his prime objective to show that Western sanctions are not working and that he can host a summit with world leaders despite a warrant on him from the International Criminal Court. However, the one and only key player at that table was, of course, China leading the push for a geo-economics alternative to the world order with its Western dominated institutions led by the US.

We expect geopolitical fault lines to deepen further as China keeps supporting Russia in its war against Europe, while economically benefitting from its record export surpluses to the US and Europe. Simultaneously, China and Russia keep trying to apply their divide and rule approach with the EU. Ironically, a Trump presidency and its confrontational approach to the EU would lead to drastically improved political cohesion in the EU. Largely underestimated remains the new, more unified and forceful EU Commission leadership, more likely to overrule individual member states, as recently seen in the case of Germany being sidelined when slamming taxes on China in the electric car sales battle.

China, in addition, will continue to suffer domestically from lower than expected economic growth, rising unemployment and deflation due to its misguided economic policies. Recent monetary stimulus and expansive fiscal measures are clearly insufficient. We see these measures as a fearful reaction of China’s ruler to prevent social unrest and not as change in attitude in promoting private business and economic transition to consumption.

Europe to Invest in Growth and Innovation

Mario Draghi’s report on European competitiveness has delivered a straightforward and valuable analysis of Europe’s largely self-inflicted weak growth, stagnating productivity and subpar innovation.

This stands in sharp contrast to the vastly outperforming US economy with its world class and well-oiled ecosystem encompassing a very large unified market, deep and liquid capital markets, a can-do business culture, leading universities and research&development.

Europe must lift economic performance by overcoming costly fragmentation, boosting labor and capital productivity, reducing bureaucracy and simplifying regulation. To finance such long overdue reforms, investments from public and private sector sources are needed on a very large scale. This can only be achieved by establishing a fully functioning capital market and banking union.

National Security – The New Imperative

Russia’s invasion of Ukraine supported by China, Iran and North Korea is a massive attack on the European security order and is challenging NATO and all European nations alike. National security is the new global imperative and Europe needs to invest fast and massively to rehabilitate its defense capabilities to achieve military combat readiness and economic resilience.

A Trump presidency with its hostility to European NATO partners will lead to strong political cohesion in Brussels and to massively increased defense spending benefitting primarily the European aerospace&defense sector.

Equities – The Asset Class of Choice

Equities remain in all current scenarios the asset class of choice and high grade government bonds serve as the optimal complementary investment. Gold and the Swiss Franc continue to provide best-available safe haven benefits. We expect strongly growing demand for private markets equity and debt, particularly, in all areas of critical infrastructure and defense.

Independent from the outcome of the US presidential elections our favorites for 2025 include the US, Europe and ASEAN in terms of geography. From a thematic point of view, we favor technology, infrastructure, industry and defense. We would continue to avoid China and related exports.