US election: Investors abandon equities for debt markets

·2-min read
New York Stock Exchange. Photo: Michael Nagle/Xinhua via Getty
New York Stock Exchange. Photo: Michael Nagle/Xinhua via Getty

Global investors placed more money into debt funds rather than equity funds in October following heightened fears ahead of the US presidential election, according to data from funds database Refinitiv Lipper.

The study showed that global debt funds received an inflow of $49bn (£37.6bn) in October, compared with an outflow of $2.6bn in equity funds.

Since voting closed on Wednesday, the global stock market has been rallying as Democratic presidential candidate Joe Biden appears to be heading closer to the presidency.

While Biden could be on the brink of victory, incumbent president Donald Trump has launched a series of lawsuits in swing states.

“For the economy a status quo outcome or Democratic win with a divided Congress have very similar growth paths in our scenario analysis but are marginally weaker than our baseline, and about 100bps lower than a Democratic sweep outcome,” said UBS in a note on Thursday.

The gains in early trading on Thursday in Europe remained modestly positive as a Biden win seemed likely. The FTSE (^FTSE) in London was 0.5% higher, Germany’s Dax (^GDAXI) was up 0.8%, while France’s CAC 40 (^FCHI) rose 1%.

READ MORE: US election: European stocks hit two week high amid Biden edging closer to win and Trump filing lawsuits

“Last week’s selloff looks more and more like pre-election jitters, a bout of nervousness that has been reversed even more swiftly than it appears,” said Chris Beauchamp, chief market analyst at IG.

As the election results become clearer, the earlier movement from equities to debt funds may already be shifting, with some clear winners on Wednesday from a potential Biden presidential win.

“The big winners were technology giants and the healthcare sector, which may well end up with their dream scenario of a Biden White House and a Republican-controlled Senate,” said Adam Vettese, market analyst at eToro.

Yet, market confidence could wane again.

“Without both houses, Biden’s ability to pass tax increases and increase regulation will be restricted, while tech firms are eyeing a smoother relationship with China (which is crucial both to supply chains and as a market for tech products)” said Vettese. “If the Democrats fail to win a Senate majority, Biden will be restricted in his ability to reform healthcare and increase regulation there.”

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