At Union Investment's recent capital markets dinner in Frankfurt, the asset manager's experts discussed two current topics: prospects and scenarios for the US election, and opportunities for bonds in the interest rate turnaround. The US election on 5 November „can have a significant impact on the economy and capital markets and therefore on portfolio orientation,“ said Senior Economist Sandra Ebner.

„One thing seems clear: the race for the White House is likely to be extremely close.," she said. Things are currently looking good for Kamala Harris. She is close to or on a par with her opponent Donald Trump in all key states. The euphoria among Democratic voters is also as high as it was in 2008, but a lot can happen between now and the election in November. Union Investment has set up a task force for the US election, and is prepared for all possible outcomes.

The US election is about predictability (Harris) versus unpredictability (Trump). „With the first female president in US history, the consequences for the economy and capital markets should at least be easy to calculate,“ says Ebner. „To a large extent, Harris is likely to continue to pursue the economic policy course of her predecessor.“ This means, among other things, that extensive investment programmes such as the Inflation Reduction Act will continue.

„Under a second Trump presidency, however, things could become unsettled,“ warns the economist. „Because it is likely to be even more unpredictable than the first term from 2016 to 2020.“ This time, Trump's circle consists exclusively of people who support him uncritically.

According to Ebner, with Harris as president, utilities and industrial stocks could benefit from continued infrastructure investment. „In the longer term, the markets should benefit from stronger economic growth under Harris – if she gets the necessary majority in Congress,“ she explained.

However, Union Investment identifies risks in the event of a Trump victory. „In the short term, markets could rise because they expect Trump to keep corporate taxes low, and further deregulation,“ says Ebner. „In the longer term, however, there is a risk of a bitter awakening. Under Trump, we expect dwindling economic growth with higher inflation, and generally greater uncertainty.“

The companies that would benefit would differ depending on the outcome of the election. With Trump, for example, companies that benefit from tax cuts, but are not affected by the planned deportation of labour, are more likely to be among the winners. With Harris, infrastructure companies are more likely to benefit.

Christian Kopf, head of fixed income portfolio management at Union Investment, put forward four theses for the bond market. Under the first, inflation has now been largely defeated. „The focus of monetary policy is currently shifting from inflation to economic growth,“ says Kopf. The focus is now on securing employment.

Under the second thesis the bond markets will offer asymmetrical opportunities for price gains. The Fed and the ECB will continue to cut key interest rates. Although key interest rate cuts are already priced in by the markets, monetary policy is currently rather restrictive, and if we do slip into a recession, there is an opportunity for price gains, as the central banks would then cut rates further.

„Bonds offer diversification benefits again,“ says Kopf in a third thesis. This applies to safe government and corporate bonds in a mixed portfolio. During the negative and zero interest rate phase, this diversification advantage was lost, but now that interest rates are back up, this advantage has returned. „If you hold corporate bonds with a good credit rating, you don't have to worry about a recession,“ explains Kopf.

Selected corporate bonds with good credit ratings offering stability beyond government bonds is the fourth scenario. Here, euro corporate bonds are supported by an overall robust fundamental situation of the issuers. A number of companies are performing extremely well. It is quite conceivable that some corporate bonds will have a lower interest rate than those of certain states. For example, Generali's spread over Italian government bonds is already close to zero.

Kopf also continues to see opportunities in Portuguese and Greek government bonds. On the other hand, he would not buy French government bonds, based on the fundamentals. German government bonds are also unattractive, due to their relatively low yield level.