Global investors are scrambling to avoid the impact of the "US election"! Is gold one of the safe havens?

To cope with the volatile market fluctuations ahead of the U.S. presidential election on November 5th, investors are rushing to "fortify" their global investment portfolios and withdraw assets affected by uncertainty, ranging from large-cap tech stocks to European government bonds.

Currently, Republican presidential candidate Trump and Democratic vice presidential candidate Harris are fiercely competing, and are likely to propose policies that create radically different geopolitical and global trade prospects. Fund managers are prepared to deal with months of volatility.

Ross Yarrow, Managing Director of U.S. Equities at investment bank Baird, said, "The market abhors uncertainty, and as poll results trend towards a 50-50 split, this situation is the most uncertain."

Trump is believed to potentially boost U.S. corporate profits through tax cuts, but may also increase import tariffs, which is bad news for European and Asian exporters as well as U.S. inflation.

Harris may impose stricter regulations on banks and adhere to Biden's cautious foreign policy.

The S&P 500 index fell by 2.3% on Wednesday, marking the largest single-day decline since December 2022, as tech giants' stock prices plummeted, with this decline spreading to European stock markets on Thursday.

Investors are staying vigilant against further selling and are looking towards small-cap stocks, UK assets, and gold as potential safe havens.

Spreading Anxiety

Trevor Greetham, Head of Multi-Asset at Royal London Asset Management, said, "We believe that the market could become more tense about the U.S. presidential election."

A crucial point for the global market is that investors are concerned that both candidates will use large-scale spending plans to win votes, potentially leading to turmoil in the U.S. bond market and causing severe volatility in global stocks and bonds, whose valuations are supported by long-term U.S. Treasury yields. He said:

"If both candidates indicate they will increase spending, we may see the U.S. bond market becoming unsettled before November, which could disrupt the stock market."

Last week, the 30-year U.S. Treasury yield surpassed the 2-year Treasury yield as large investors took note of the long-term credit risks in the U.S., with the U.S. government's budget deficit nearing $2 trillion.

Greetham stated that he is reducing global stock holdings and has a negative stance on government bonds. Nathan Sweeney, Head of Multi-Asset at UK asset management firm Marlborough, said, "The U.S. has a lot of debt, and our election brings uncertainty about who will govern and what spending policies they will adopt."

Sweeney mentioned that he has reduced exposure to long-term U.S. Treasuries and equivalent Eurozone bonds, stating that these bonds face new risks if Trump cuts support for Ukraine, leading European countries to increase debt for defense budgets.

Adam Norris, Multi-Asset Investment Manager at Columbia Threadneedle, stated that emerging market stocks and bonds are vulnerable to Trump's proposed tariff hikes, as higher trade tariffs would impact the economies and currencies of exporting countries However, Sweeney said that UK government bonds may perform well as the UK has experienced bond market turbulence following the chaotic budget of Prime Minister Truss in 2022 and is unlikely to risk excessive spending again.

Stock Market Volatility

Recently, the volatility of the US stock market is rising from a low point, with traders switching between sectors in the stock industry as election odds change.

At the same time, the small-cap US Russell 2000 Index is soaring, as the market bets that Trump's growth policies will benefit domestically-focused companies rather than global tech firms.

The Russell 2000 Index has recently been outperforming the Nasdaq 100 Index.

Yarrow said that if Trump's support in the polls declines, this rotation may collapse. He said, "The election makes the market difficult to operate, and since Harris has not detailed her business policies, I really don't know what 'Harris trades' will look like."

Norris stated that he has reduced his holdings of tech stocks due to high valuations and political uncertainty, while he remains optimistic about undervalued UK stocks, "We focus on things that we believe can operate independently, develop steadily, and remain silent."

Benjamin Melman, Chief Investment Officer of Edmond de Rothschild Asset Management, said that a Trump victory may make him cautious about European exporters due to tariff risks, and he prefers smaller, less internationalized European companies.

Gold is Shining

Gold has been soaring for months, hitting historical highs earlier, reflecting increased central bank holdings and escalating tensions in the Middle East. Norris stated that at the current price, gold is not a safe haven.

However, Melman of Rothschild expects that if the US budget deficit, potential trade wars, and geopolitical turmoil lead to an imbalance in the US dollar and broader currency markets, gold will continue to shine.

"The dollar is losing some of its characteristics as a reserve currency, while populists are knocking on the door in many parts of the Western world."