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03 Nov 2020
Life, liberty and the pursuit of alpha
Bayerische Motoren Werke AG (BMW:ETR), 0 | Commerzbank AG (CBK:ETR), 0 | BP p.l.c. (BP:LON), 527 | BT Group plc (BT.A:LON), 105 | Aviva plc (AV:LON), 462 | Svenska Cellulosa AB SCA Class B (SCA.B:OME), 0 | Pernod Ricard SA (RI:PAR), 0 | Reckitt Benckiser Group plc (RKT:LON), 4,362 | SEB SA (SK:PAR), 0 | Atos SE (ATO:PAR), 0 | ENGIE SA. (ENGI:PAR), 0 | Smiths Group Plc (SMIN:LON), 1,607 | Novartis AG (NOVN:SWX), 0 | PUMA SE (PUM:ETR), 0 | Johnson Matthey Plc (JMAT:LON), 1,752 | ASML Holding NV (ASML:AMS), 0 | Anglo American plc (AAL:LON), 2,488 | Sage Group plc (SGE:LON), 1,162 | Airbus SE (AIR:PAR), 0 | Nucor Corporation (NUE:NYS), 0 | Demant A/S (DEMANT:CSE), 0 | Travis Perkins plc (TPK:LON), 738 | Derwent London plc (DLN:LON), 2,042 | Fraport AG (FRA:ETR), 0 | easyJet plc (EZJ:LON), 541 | International Flavors & Fragrances Inc. (IFF:NYS), 0 | Tenaris S.A. (TEN:MIL), 0 | Rightmove plc (RMV:LON), 512 | Prada S.p.A. (1913:HKG), 0 | METRO AG (B4B:ETR), 0 | DWS Group GmbH & Co. KGaA (DWS:ETR), 0 | La Francaise des Jeux SA (FDJ:PAR), 0
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Life, liberty and the pursuit of alpha
Bayerische Motoren Werke AG (BMW:ETR), 0 | Commerzbank AG (CBK:ETR), 0 | BP p.l.c. (BP:LON), 527 | BT Group plc (BT.A:LON), 105 | Aviva plc (AV:LON), 462 | Svenska Cellulosa AB SCA Class B (SCA.B:OME), 0 | Pernod Ricard SA (RI:PAR), 0 | Reckitt Benckiser Group plc (RKT:LON), 4,362 | SEB SA (SK:PAR), 0 | Atos SE (ATO:PAR), 0 | ENGIE SA. (ENGI:PAR), 0 | Smiths Group Plc (SMIN:LON), 1,607 | Novartis AG (NOVN:SWX), 0 | PUMA SE (PUM:ETR), 0 | Johnson Matthey Plc (JMAT:LON), 1,752 | ASML Holding NV (ASML:AMS), 0 | Anglo American plc (AAL:LON), 2,488 | Sage Group plc (SGE:LON), 1,162 | Airbus SE (AIR:PAR), 0 | Nucor Corporation (NUE:NYS), 0 | Demant A/S (DEMANT:CSE), 0 | Travis Perkins plc (TPK:LON), 738 | Derwent London plc (DLN:LON), 2,042 | Fraport AG (FRA:ETR), 0 | easyJet plc (EZJ:LON), 541 | International Flavors & Fragrances Inc. (IFF:NYS), 0 | Tenaris S.A. (TEN:MIL), 0 | Rightmove plc (RMV:LON), 512 | Prada S.p.A. (1913:HKG), 0 | METRO AG (B4B:ETR), 0 | DWS Group GmbH & Co. KGaA (DWS:ETR), 0 | La Francaise des Jeux SA (FDJ:PAR), 0
- Published:
03 Nov 2020 -
Author:
Pethe Jean-Baptiste JBP | Jose Dennis DJ -
Pages:
58
Election day is here, with the polls, pundits and punters continuing to favour Biden. While the race has tightened a little, Trump still needs a polling error higher than 2016 to win. We evaluate all three key post-election scenarios: a) The Status Quo (Trump + GOP Senate); b) The Chop (Biden win + GOP Senate); and c) The Blue Wave (Biden win + Dem Senate). And 27 of our top-ranked teams have analysed how each election scenario is likely to shake out in their respective sectors.
Are you ready? What to expect, and when
We will probably not know the election outcome soon, unless it''s a blowout Biden win. Our timeline suggests that unless Biden wins one of the States likely to announce results overnight - Florida, Georgia, N. Carolina, Texas - we might have to wait a few days to ascertain the likely winner.
''The Status Quo'' and ''The Chop'': It''s all about the stimulus
In the Status Quo, we assume stimulus of $850bn. We suspect US markets will react favourably, with a stronger dollar, EM weakness and neutral rates. The Chop is likely to see an initial negative reaction on Wall Street, as the likelihood of stimulus is lower (we assume $420bn). We see dollar weakness, EM outperformance, and modestly lower rates as the probable knee-jerk reactions.
''The Blue Wave'': Will it hit a Senate wall?
Barring a blowout win, our analysis of voting histories suggests that the marginal Senate voter is likely to be centrist. This suggests sizeable stimulus ($2.3trn), and importantly, tax hikes that are less onerous than feared. We explore the mechanics of passing the stimulus given the filibuster. In a Blue Wave, we see higher yields, and value and ESG/Biden Basket outperformance.
Bullish... and with fewer buts than before
Following a 9% correction, the much needed sentiment reset we highlighted in Bullish...with a But has materialised. The market yields sufficient longer-term upside in all post-election scenarios. And the likelihood of positive vaccine news...