Slim majority of selectors unfazed by US budget breakdown

In a poll commissioned by InvestmentEurope, a slim majority of fund selectors across Europe said they would not change their allocation towards US assets as a result of the government shutdown, but most were scathing of the politics behind the issue.

On October 1st, the US government’s new fiscal year began – accompanied by a partial federal shutdown. With the October 17th deadline to renew the federal borrowing authority fast approaching, the deadlock precipitated by the Patient Protection and Affordable Care Act (more commonly known as “Obamacare”) would have to be released to avoid default. After a number of tactical moves by both sides, an agreement was reached on October 16th to reopen government at least until January 15th and to extend the debt limit to 7th February.

Subscribers to InvestmentEurope were invited to participate in this poll during the first days of the shutdown.

Q1. Where are you based?

Location%  
 Belgium, Netherlands, Luxembourg (BNL)16%
 Germany, Austria, Switzerland (DACH)28%
 Denmark, Finland, Norway, Sweden (Nordics)23%
 Greece, Italy, Portugal, Spain (Southern Europe)23%
 UK&Ireland10%

 

q1-oct

 

50% of respondents hold an allocation to the US of between 10% and 25%. There was little difference in allocation patterns between different regions.

 Allocation% 
Less than 10%18%
 10%- < 15%15%
 15%- < 20%20%
 20%- < 25%15%
 25%- < 30%11%
 30%- < 40%8%
 40%- < 50%8%
50% or greater5

 

q2-oct

Q3. Who do you hold chiefly responsible for the US government shutdown?

Europe’s fund selectors tend to blame the Republicans for the shutdown. Although 40% do think Obama and the Democrats must take at least some responsibility.

Responsible party %%
 President Obama and his administration/Democratic party7%
 Republican party60%
 Both equally33%

 

q3-oct

 

q6-split-oct

Q4. When do you think the shutdown will end?

Most respondents didn’t expect the shutdown to extend past the October 17th debt ceiling deadline – and they were correct…just.

End of Shutdown%
 By 10th October8%
 By 17th October49%
 By 31st October31%
 Later11%

 

q4-oct

 

q4-split-oct

Q5. How has the shutdown affected your allocation to the US?

Fund selectors in the UK have been quick to act, cutting exposure to the US before the shutdown was more than a few days old. A third of respondents in other regions had been just as quick, although the slight majority tended not to expect any changes

Effect of Shutdown%
 Won’t affect US allocation51%
 Will affect it if continues15%
 Already reduced US allocation34%

 

q5-oct

 

q5-split-oct

 

 Q6. What impact will the shutdown have on the European economy in the short term?

The majority expect little or no impact at all, with a third expecting a negative impact and a small minority anticipating a positive impact owing to (according to one respondent) “less competition for capital for European economies”.

Short Term Impact on European Economy%
 Negative impact36%
 Little or no impact62%
 Positive impact2%

 

q6-oct

 

q6-split-oct

Q7. What are your thoughts on the US government shutdown, in general?

Perhaps predictably, European fund selectors are none too complimentary in their choice of words when asked their thoughts on the shutdown.

“I think it’s irresponsible of the president and his men to even talk about default. There’s no reason for us to default. We bring in $250 billion in taxes every month. Our interest payment is $20 billion. Tell me why we would ever default,” Rand Paul said on NBC’s “Meet The Press.”

“We have legislation called the Full Faith and Credit Act, and it tells the president you must pay the interest on the debt. So this is a game.”

A rule useful to force an agreement.

Am more worried about the debt ceiling issue

American politics is not a model for any democracy anywhere in the world.

An unpleasant disconnection between politics and the market’s reality

Badly managed process.

Concerned that not much attention has been paid to potential default (re debt ceiling). In that case what would happen to fund mandates holding temp default instruments?

Embarrassing.

Highly irritating. As to resolution, I tend to agree with Krugman that the most plausible way out of the crisis is that Wall Street will come to the rescue, big money will tell The Capitol that they have to put an end to the nonsense…

I visit the USA in two weeks and be afraid to see closed National Parks and Points of Interest.

Irresponsible bunch of idiots

It highlights politic paralysis

It is a political game. The Democrats have to compromise on Obamacare and then the budget will be passed. The Democrats will be blamed for every veto (like the cancer child) of a line by line budget.

It just shows again that the US system doesn’t work. The extremes are getting more influential.

Little understanding and political issue..

Lunatic

Mostly a political issue

Not enough reforms. This is the result of it.

Out of control spending has to be stopped anyway (not only US, also EU) although it means some rough years in the near future
politicians are short term populist idiots who frustrate world growth

Probably creates some short-term opportunities for European money managers/ markets

Shame

Shouldn’t happen

Showing that we are reaching a point, where democracy and compromise are no longer valid words. Im afraid, it will only get worse moving forward

Shut down can be even seen as a sharp cut in expense, so in the worst scenario, at least economy will go on

That it is hilarious that a political system can put ideology before the apparent need of the country. whether it is “Obamacare” gun control OR this imbecilic invention called “government shutdown” !

The budget process should be adapted to avoid those issues

The impact should not be underestimated if it takes longer than expected for a solution. However much larger risks are ahead with debt ceiling (needing to be lifted).

The shutdown is a manifestation of the checks and balances at play in the US. Unsustainable debt increases have to be addressed. I see this shutdown as positive in this light.

The US is bankrupt anyway. The question is when the world will notice

The world’s most expensive kindergarten!

They shouldn’t arrive at the end to find arrangements

Try to use brain

USA is the most pragmatic nation in the world, a bit political theatre to start with but no one is going to create a serious trouble.

When things start to become good in economy the politicians have always to mess up things.

Will be bigger than Lehman Bros failure

 

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