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The quiet Americans

Nothing heats up debate like a US election, especially in a year when there is such a firm split between the wishes of the American voting public and the rest of the world. War in Iraq, a burgeoning deficit and cries of Republican arrogance have raised a distinct difference in opinion, with almost the entire world backing Democratic candidate Senator John Kerry while Americans tend to favour George W Bush.

But while many US elections in the past drew considerable debate over what the results could mean for world markets, this is one area of political thought that has so far been incredibly quiet. Many commentators feel that a win by either candidate will not significantly affect US or international markets in the next few years.

Seven Investment Management director Justin Urquhart Stewart says there is little indication that either candidate&#39s election will stimulate markets. He says: “We already know Fed-eral Reserve Board chairman Alan Greenspan is looking to raise rates to 3 to 4 per cent in an economy where already there is a slow on spending. Additionally, any White House – Democratic or Republican – will have the biggest deficit in history to deal with so I cannot see any president being able to deal with this situation significantly enough to stimulate the economy further.”

Urquhart Stewart says there traditionally seems to be a quiet investment period after a US election while markets wait to see what the new president will do. But this time around, the quiet period may last a lot longer than usual. He says: “I believe Bush will return to power. But with present conditions, I cannot see a huge change in the US markets for at least 18 months.”

Newton Investment Management director Harry Morgan also believes Bush will win a second term and that there will not be a lot of movement after the election. But he suggests IFAs may want to watch the repositioning of funds and discretionary managers before the election to see what the pundits think will happen.

Independent investment consultant Andrew Watkins believes markets would prefer a second term of Bush and he believes they will get it. He says: “Bush has been a tax-cutting president, which business loves. Coupled with Greenspan&#39s management of the economy, it is seems we are set for a stable ride in the US, at least in the short term.”

As for a Kerry win, Watkins, Morgan and Urquhart Stewart agree there is not much to say other than it is not likely to happen.

Morgan says: “While the rest of the world is politically behind a Kerry win, he cannot seem to get ahead in the polls. His economic stance is not altogether clear and it all points to his likely defeat in the election and little effect on the markets.”

Watkins says UK IFAs should be aware of their exposure to the US market through the companies they invest in here as most British companies with international interests have substantial exposure to the US. But he does not think they should not be too concerned. “Changes in the US are likely to be subtle and not likely to cause IFAs too much concern,” he says.

However, Alan Steel Asset Management consultant Alan Adam is thinking exactly the opposite. He believes the likelihood of a Bush win heralds considerable potential growth in the US over the next year.

He believes markets are pausing at the moment until they are convinced of a Bush victory. When they are assured, Adam says this could be a catalyst for substantial growth. “Chief execs are starting to spend again. They are becoming more and more certain Bush will win and are beginning to implement changes, such as expansion and higher levels of spending. Rather than a cooling of markets, I believe a Bush victory is going to be the impetus for a market boost, especially in the tech sector which looks to be beginning to spend again,” says Adam.

He believes now is the time to get better exposure in the US to make the most of this boost. “Buying now could be the equivalent of buying at a 20 per cent discount,” he says.

The outcome of the election seems to be a better bet than laying money on what will happen to markets after the election. But whichever way you look at it – period of slow growth or the beginning of a boost – now is a good time to be readdressing your clients&#39 exposure in the US.


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