Battered markets have a new thing to worry about: the possibility of a socialist US president, our monthly outlook warns.
Bernie Sanders has so far done surprisingly well in the race for the Democratic Party nomination to challenge US President Trump in the November election. The 78-year-old senator is by far the most left-wing candidate to challenge for the position in decades.
“In 2019, the main risks to the macro outlook for investors were the trade wars, the global industrial recession and major central bank easing/tightening – issues that are known unknowns,” says Regina Borromeo, Senior Portfolio Manager and Director of Global Macro at Robeco. “For 2020, they are the global spread of Covid-19 and the possibility of a Bernie Sanders presidency.”
“Sanders is an anti-establishment politician and, in many ways, an outsider and disruptor. Since losing out to Hillary Clinton for the nomination in 2016, he has sharpened his process and campaign machine to build a strong base among previously undervalued groups such as young people and Latino voters.”
“Whilst the market base case assumption has been a continuation of the status quo – a Republican President (Trump), a Republican-led Senate and a Democratic majority in the House of Representatives – this time around, Sanders may finally have learned how to win!”
Sanders’ main rival is former Vice-President Joe Biden, who did well in the ‘Super Tuesday’ primary polls across 14 states and is much more moderate. “Establishment Democrats are unsure that Sanders’ brand of democratic socialism can win the national vote, since he is much more left-wing than the average American,” Borromeo says.
“Furthermore, long-standing Democrats are wary of insurgent candidates such as Sanders, since he ran as an independent for his Vermont Senate seat, and is only running as a Democrat for the presidential elections. However, his high-energy anti-establishment and socialist messaging against big business and the wealthy has certainly gained traction, whilst the moderate vote has remained fractured.”
“The share of eligible voters from Generation Z (18 to 23-year-olds) will be more than twice as large in 2020 as it was in 2016 (10% versus 4%), which could be beneficial for Sanders. President Trump has shown that political dominance and anti-establishment behavior can win. Sanders would need to mobilize an unprecedented youth vote and expand the electorate to win the Democratic nomination, as well as to beat Trump.”
So, what does Sanders advocate in such a staunchly capitalist country? “A highlight of Sanders’ campaign is social inequality, and certain policy items focus on this, such as forgiving student debt, free tuition in state universities, a series of tax increases, an increase in the minimum wage to USD 15 per hour, and universal free health care,” says Borromeo.
“These will be popular among many Americans, but some of his policy priorities are unfavorable for markets.” She says four policies in particular could hammer the markets:
The sectors most directly affected would therefore be pharmaceuticals, health care and banks, Borromeo says. However, investors should bear in mind that Congressional elections will also take place in November, posing problems for whoever becomes president.
“The two most likely scenarios are either a split Congress – with Democrats controlling the House of Representatives and Republicans controlling the Senate, as in the current situation – or a simple but weak majority by the Democrats controlling both,” she says.
“In both scenarios, it would be difficult for Sanders to pass most of his signature policies such as Medicare for All, breaking up the banks, his full tax plans and all student debt forgiven,” says Borromeo. “Congressional Democrats would need a united front to pass sweeping legislation against widespread Republican opposition, which would be a high hurdle for many of the controversial Sanders policies.”
So, what does this mean for a market being battered by the coronavirus? “A Sanders candidacy turning into a successful run for the presidency will add to the risk-off sentiment and volatility, given his anti-big business views, focus on financial regulation and restrictive tax plans,” Borromeo says.
“Medicare for All would have a high material negative impact on pharmaceutical, dialysis and medical device names, along with health care insurance. And it would have a moderately negative impact on medical equipment and supplies. With increases in volatility, idiosyncratic opportunities will arise though and give value investors the ability to pick winners and losers.”
“Perhaps the final word should rest with John Adams, a founding father of the United States, who served as the second president from 1797 to 1801. He wrote in a letter on 23 March 1776: ‘In politics, the middle way is none at all.’ Both Trump and Sanders have certainly not taken that path.”
当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。
商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会