Henderson assesses the effects of tomorrow’s US elections

In the final countdown to the elections for the next US President, and seats in the House of Representatives and Senate up for re-election, the votes cast on 6 November have the potential to change the face of American politics. Henderson Global Investors’ managers evaluate the situation below.

Expectations are that the House and Senate will only change at the margin, but the contest for the Presidency appears to change with the winds – potentially in a literal sense if the fallout from Hurricane Sandy influences the results.

US Federal Reserve Chairman
Jenna Barnard, co-manager of the Henderson Strategic Bond fund

“Ben Bernanke has been an arch-dove and leading proponent of quantitative easing (QE) policies. His term expires in early 2014 and indications are that he does not want to stay on for another term. Hence the next President will likely be appointing a different Fed Chairman. Risk comes from the Republican Party who have been openly critical of quantitative easing (QE) and Romney who has been openly critical of Bernanke. This raises the possibility that a Republican-nominated Chairman might implement a sharp change in policy away from the bond-positive QE policies pursued to date. The Fed has an independent committee but the Chairman clearly has considerable power to shape the debate and drive policy. Possible Republican candidates include: Glenn Hubbard and John Taylor. Taylor in particular would likely signal a significant shift in a more hawkish direction.”

Deficit reduction
Tom Marsico, Co-Manager of the Henderson US Growth fund

“A Romney victory would immediately generate more confidence in the US economy. Under a Romney win, I would expect the growth rate of the economy to be slightly higher – but I underscore slightly. An Obama re-election would provide some clarity regarding financial rules and would allow business to operate with more certainty going forward. Whether Obama or Romney wins, I expect to see deficit reduction using the Simpson-Bowles plan (a fiscal reform plan) as a blueprint. Simpson-Bowles has become a recognised brand and both Romney and Obama could present a modified Simpson-Bowles plan to reduce the deficit. The idea of deficit reduction should happen through reduced spending and an increase in revenue or at least a revenue-neutral plan.”

Possible tax amnesty
Bill McQuaker, head of multi-asset (pictured)

“There is a massive amount of cash – estimates reach US$700 billion – currently held offshore by US companies with overseas earnings. The tax code is such that it is currently disadvantageous for US companies to bring that money onshore. One possibility is that if the Republicans win the election they might be willing to grant an amnesty, so that cash can come back onshore without generating a tax liability. This could have positive implications for stock buybacks, dividends and even domestic US investment.”


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