By Zeshan Azam, Citi Investment Management
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The face of politics is changing fast – and with elections looming in the US, it’s important to read and react to the prevailing mood.
The journey to the polls is rarely a smooth one. The run-up to the 2020 US elections, however, promises to be exceptionally bumpy.
Stepping away from the tracks as the train races towards the voting booths is one option, but here at Citi Private Bank we see merit in taking an apolitical, informed stance on election newsflow.
We’ve identified sectors that will be particularly affected during the campaign and have positioned ourselves accordingly. We take our cues from the wave of populist sentiment we believe will influence decisions and policies in the coming months.
A populist election
Unless you’ve entirely avoided the news over the past few years, the emergence of populism won’t have escaped you. This style of politics has appeared on the left and right across the globe, drawing the electorate away from the middle ground and dividing nations into ‘the elite’ and ‘the people’. Populists often engage voters by ramping up a sense of crisis, breakdown and threat, pushing voters towards the extremes. We believe populism is here to stay.
As the US election nears, populism’s effects will be felt in almost every industry and sector. In such a situation, it takes skill and a cool head to remain apolitical, taking a long-term approach while never losing sight of short-term opportunities.
Focusing on high-quality companies is key for both the long and short terms, while avoiding those in the firing line from populist campaigning will help to create sustainable portfolios.
Divided we conquer
Populism is divisive, but there are common themes. Politicians on the populist left and right often share an ideological focus. These are the areas that we choose to focus on, too. Preoccupations include the cost of healthcare, the increasing influence of large technology firms and the need for infrastructure spending.
Citi Private Bank does not try to predict political outcomes, seeking instead to identify policies on which left and right have a view. We know which sectors will be affected as the US prepares to go to the polls. Our job is to position our portfolios accordingly. We have already reassessed our positions in large-cap pharmaceutical companies in the knowledge that politicians of all stripes will focus on the cost of medicines during the election campaign. We are also analysing those companies that could benefit from a post-election infrastructure upgrade for addition to our portfolios on a longer-term basis.
As well as long-term themes, there will be shorter-term opportunities in the coming months. These may be similar to the buying opportunity created in the run-up to the 2016 elections when a tweet by Hillary Clinton caused a temporary dip in pharmaceutical stock prices.
An impersonal approach
Managing our portfolios to take populism into account involves putting aside our personal biases, embracing the ideas shared by the different groups and ensuring we are well placed for the longer term.
Investors may need to hang on to their hats as the run-up to the 2020 presidential election may not be the smoothest of rides, but there is still value to be found.