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Extraordinary meeting of the
Union Investment Committee

UIC portfolio: equity overweight neutralised
  • No ‘Biden sweep’, but outcome of the election remains open

  • Uncertainty about further course of events

  • Risk positioning shifted to ‘neutral’ (RoRo meter at level 3)

Neutral risk positioning, RoRo meter now at level 3 

Risikoausrichtung geht auf neutral

The citizens of the United States have cast their votes – but the winner remains unclear. The current electoral college arithmetic puts Democratic challenger Joe Biden ahead in the presidential race. But key states such as Michigan, Wisconsin and Pennsylvania have not declared their results yet. The count continues and it is still not foreseeable when, or indeed whether, an official end result will be announced. Citing irregularities, the incumbent Donald Trump has indicated that he will not accept the result and intends to go to the US Supreme Court. For the moment, it is a stalemate.

The anticipated uncontested victory for Joe Biden, the ‘Biden Sweep’ has therefore not come to pass. Instead, we have reached the impasse that many had been concerned about. The main implication of this result for the capital markets is uncertainty. Risk aversion and volatility are likely to rise and remain heightened until the situation has been resolved.

Extraordinary meeting of the UIC

Against this backdrop, the Union Investment Committee (UIC) convened for an extraordinary meeting this morning. In light of the uncertainty about the further course of events, the committee shifted the risk positioning back to neutral (RoRo meter at level 3). The existing overweight in equities (from both developed and emerging markets) will be neutralised. Alongside these adjustments, commodities positions that were established for financing purposes will also be closed out. The remaining 2.5 percentage points will be allocated to safe government bonds from core countries to mitigate the underweight exposure to this asset class.

Further course of events unclear

What happens next? Is looks like the remaining US states that will decide the outcome of the election are going to finish their counts over the course of the coming days. This means that the final composition of the electoral college, the body that elects the president, could be determined by the end of this week, which would provide clarity about who the next President of the Unites States will be. In this scenario, the country would be at an impasse, but only for a limited period of time. However, it is unclear what legal steps would ensue if Donald Trump follows through on his announcement to challenge the result in the Supreme Court. All in all, the outcome of the election thus remains completely open.

Congressional election results suggest continuation of the status quo

The congressional elections that are being held simultaneously are presenting a mixed picture. The Democrats appear to have successfully defended their majority in the House of Representatives. But their chances of also winning a majority in the Senate, which had seemed achievable for a time, are now clearly diminishing. It is looking increasingly likely that the Republicans will maintain their majority in the Senate. Even if Joe Biden takes over the presidency from Donald Trump, he would therefore have to work with a split congress based on the count as it stands at present. This would make it much more difficult for the Democrats to push through their policy agenda (e.g. tax increases, an increase in the minimum wage, spending programmes).

Our positioning

Our positioning
As at: 17 November 2020

As at: 4 November 2020

Market news and expert views

Market news and expert views: November

Economy, growth, inflation and monetary policy – the monthly report ‘Market news and expert views’ will keep you informed about the latest developments and our expert assessments. It will also give you a comprehensive review of and outlook for the relevant asset classes.
(As at 26 October 2020)