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High Costs of Waiting Amid Election Uncertainties

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  • Polling data show President Trump’s odds of retaining the presidency could make his victory in 2020 more surprising than 2016. Former Vice President Biden retains a 9.0% poll lead nationally (as of 25 October, based on the average of national general election polls), a stronger lead than Hillary Clinton’s at this time in 2016. Equity implied volatility for the period just after the US election has fallen, indicating markets no longer anticipate a protracted battle to determine who is President. If President Trump pulls off another surprise victory, he is likely to preside over a divided government with Democratic control of the US House of Representatives.

 

Uncertainties from the US election

  • If Former Vice President Biden wins a decisive popular vote and the Electoral College, his ability to govern domestically could depend on the control of the Senate. If the Senate does not change hands, he is unlikely to be able to create vastly new domestic tax and spending initiatives in his first two years at minimum.

 

  • Looking internationally, there is a marked contrast between both candidates’ approach to trade and tariffs. Thus, US trade policy uncertainty measures have reduced while tax policy uncertainty has surged. Further, Citi analysts think that the election uncertainty may have caused many to cover short positions in the USD. A Trump surprise victory could see a further rally in USD while a Blue Wave sweep (Biden plus Democrats winning the Senate) could reinforce this year’s structurally driven drop.

 

 

The high cost of waiting

  • Global investors have behaved tentatively before recent elections. Tentativeness – fear of policy uncertainty – abated only after the election uncertainty has lifted. Yet, looking back, global equity fund inflows have followed each of the prior four US elections. When contemplating adding to portfolios, investors may assign greater anxiety to the fear that a decision to invest today may be poorly timed and suffer immediate losses. However, waiting is an expensive behavior. When markets were in turmoil earlier this year due to the COVID-19’s large exogenous shock, missing the two best days of 2020 could have reduced an investor’s return in US shares by 19.3%.

 

2021 and 2022 could see a period of strong economic growth and market performance

  • Markets are likely to be driven by a recovery in depressed industries and a consolidation of gains for sectors that have already boomed. The four reasons are 1) highly likely viable and available vaccines; 2) a rebound in trade and industrial production; 3) pent up demand for services; and 4) fiscal stimulus globally. With the US Federal Reserve is likely to keep shorter-term interest rates atypically low for years to come, higher equity allocations are preferred as bonds may provide fewer diversification benefits. Thus, Citi’s Global Investment Committee is overweight global equities, and underweight global fixed income and cash.

 

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MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

Hong Kong: This communication is distributed in Hong Kong by Citibank (Hong Kong) Limited ("CHKL") and/or Citibank, N.A., Hong Kong Branch (“CBNA HK”, Citibank, N.A. is organized under the laws of U.S.A. with limited liability). CHKL and CBNA HK provide no independent research or analysis in the substance or preparation of this communication. Although information in this communication has been obtained from sources believed to be reliable, CHKL and CBNA HK do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.

This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein
has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs,
and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong
and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under
the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors,
as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom
it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making
an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated
with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for
themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from Its use.

CSL does not provide discretionary portfolio management services.

UAE: This document is distributed in UAE by Citibank, N.A. UAE. Citibank N.A. UAE is licensed by UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity as Promoter under license number 602003.

Citibank N.A. UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch.

This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives.
At any time, Citigroup companies may compensate affiliates and their representatives for providing products and services to clients.

United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

Citibank UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm’s Financial Services Register number is 805574. Citibank UK Limited
is a company limited by shares registered in England and Wales with registered address at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, Companies House Registration No. 11283101.

Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citi International Personal Bank is registered in Jersey as a business name of Citibank N.A. The address of Citibank N.A., Jersey Branch is P.O. Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A. is incorporated with limited liability in the USA. Head office: 399 Park Avenue, New York, NY 10043, USA.

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