US presidential election: Stocks under Romney, bonds under Obama

Tuesday’s US election is being closely watched by financial markets all over the world, with incumbent Barack Obama seen as more supportive of continued stimulus measures and Republican challenger Mitt Romney expected not to favour additional easing. Here is what the markets feel:

If Romney wins

• Growth outlook looks promising. Investors also say this means going long on US equities and selling bond portfolios  
• Stronger dollar if growth comes back and money flows to equities, causing a fall in the rupee  
• Stronger US growth will mean emerging market investors withdraw money to buy US equities. This could attract a sell-off, including in India  
• Bearish outlook for gold as growth will reduce need for a safe haven  
• Risk of tighter Fed policy will increase, followed by protectionism. This means outsourcing will be discouraged

If Obama wins

• Investors will favour bonds and are divided about the direction of equities  
• US equities may see a sell-off, though it could be small or short-lived  
• Possibility of long positions getting carried in the case of the Russian ruble, Brazilian real, Australian dollar and Indian rupee  
• Investors could turn long on the euro and, hence, bearish for the dollar. This will be good for India. Prospects of a gold rally may also remain intact  
• The major concerns are tax/regulatory impediments, followed by a Congressional gridlock

Source: Barclays Research