US election: implications for Europe
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US ELECTION: IMPLICATIONS FOR EUROPE
The U.S. presidential elections are just about one month away, and with polls pointing to a tight race between Donald Trump and Kamala Harris, investors are gearing up for different scenarios.
Citi suggests European equity investors approach the vote with three strategies, first, treating it as a volatility event; second, looking at the policy implications and third, focusing on potential impacts for individual stocks.
"Volatility usually rises into U.S. elections and fades after. On a tactical basis, this implies adding select defensive exposure into the election and rotating into cyclicality afterwards," write strategists at the U.S. bank.
Over the medium term, Citi notes higher tariffs and lower taxes under Trump would favour U.S. stocks over European ones, while Harris would be a relatively better scenario for European equities compared to Wall Street.
"Other issues in focus include U.S.-China relations, views on NATO/Ukraine, and US industrial policy," it adds.
Drilling down to single stocks, Trump tariffs could be a negative for carmakers BMW BMWG.DE, Mercedes MBGn.DE and Porsche P911_p.DE, as well as luxury brands LVMH LVMH.PA and Kering PRTP.PA, according to Citi. Higher corporate taxes under Harris are likely to be a negative for dollar earners.
Another sector to watch is defence.
Citi views Harris as broadly neutral, whereas a Trump win looks trickier. Trump's demand for more NATO spending as part of an isolationist drive could be positive, while a quick end to the war in Ukraine could trigger an initial up to 20% drop of defence stocks like Leonardo LDOF.MI and Thales TCFP.PA.
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