Investors should ignore US election - research

By Ben Chapman-Smith

Whether Mitt Romney or Barack Obama wins next week's election will have little bearing on the markets, says a kiwi researcher. Photo / AP
Whether Mitt Romney or Barack Obama wins next week's election will have little bearing on the markets, says a kiwi researcher. Photo / AP

Investors looking for a winning strategy based on the US presidential election next week would be wasting their time, says a Massey University finance lecturer.

Jeffrey Stangl, School of Economics and Finance senior lecturer, said investors worldwide would be watching the US right now, trying to decide which industries would benefit from the outcome.

Based on his analysis of industry returns for presidential election cycles from 1926 to 2006, the best investment strategy was to ignore the outcome, he said.

"It's intuitive to think that the defence industry, for example, will do well under a Republican president because the Republicans spend a lot on defence contracts," Stangl said.

"On the other hand, when the Democrats are in power, people believe their support for unions will translate into sectors like the automotive industry performing well.

But after crunching the numbers, these widely reported ideas were "just not the case", he said.

"I wouldn't pay any attention to the elections at all and keep my money where it is, based on value fundamentals."

Stangl's research looked at the performance of stocks grouped by industry over a long period of time.

He said previous research had shown that where markets responded to an election, the movement was often short-term and unpredictable.

He cited the example of Ronald Reagan's election in 1980, when the markets were "euphoric" in the short-term.

"If you used the election of a Republican president as a signal to buy defence stocks and hold them for the next four years, would that translate into anything meaningful? The answer is no."

Previous research has shown that, overall, the US stock market performs better under the Democrats by about 9 per cent.

Stangl said he believes the better market-wide performance under Democrats was due to macroeconomic factors that impact stocks from all sectors.

He said investors could consider investing in a market index when a Democrat president was elected, but the best strategy was to ignore the presidential race entirely.

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