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How Trump v Biden will impact your portfolio
Global investors are being advised to watch the next presidential election as the outcome could have an impact on portfolio construction and profitability of businesses.
How Trump v Biden will impact your portfolio
Global investors are being advised to watch the next presidential election as the outcome could have an impact on portfolio construction and profitability of businesses.
During a recent market update, Hamish Douglass, Magellan’s chairman, CIO and lead portfolio manager, explained how changes to corporate tax rates could impact global investors’ bottom line.
“One of the first things [Biden] will do is roll back some of the tax cuts that were put in place,” he said.
Mr Douglass highlighted that Mr Trump cut the corporate tax rate from 35 per cent to 21 per cent and changed the nature of international taxation for US companies.
“Biden said he will reverse that and increase the corporate tax rate to 28 per cent and he is going to change the nature of some of the taxation of US companies on a global basis.
“That is a negative for profitability, maybe an 8-10 per cent hit to profitability. It’s not enormous, it's not a collapse in markets, but it’s an impact,” Mr Douglass explained.
However, the fund manager explained that it is not as simple as winning the election, with Mr Biden needing to win “the trifecta” of Congress, the Senate and the White House to enforce mass changes.
“It’s not as simple if Biden beats Trump. At the moment, there’s about a 30 per cent chance in betting markets that Biden would take the trifecta,” Mr Douglass said.
“If they don’t win the trifecta, I would say there will be gridlock in Washington, and there won’t be a lot of legislative agenda, and that situation doesn’t bother us at all.”
Mr Douglass pointed out that even if tax reform was passed, its impact on businesses’ bottom line varies depending on sectors in the market.
“The nice thing about owning something like utilities is they get to pass it through, so it doesn’t really have any impact,” Mr Douglass said.
“Non-US businesses have a marginal impact on the tax they pay in the United States, but it’s not that big an issue.”
He also noted that much of the radical policy could be impacted due to needing a 60 per cent majority to pass as well as the state of the economy when the President takes office.
“How far they go ultimately in a recession environment, given it’s going to be a fiscal contraction at the time, will be interesting. But there will be some negativities around profitability,” Mr Douglass said.
Despite having an impact on the market, he noted that they are not panicking about a taxation change, highlighting it is unlikely to cause a market collapse.
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