In this week's blog, we focus on the upcoming November U.S. Presidential election and its potential impact on global financial markets, including our own. We delve into various professional perspectives, as presented in the Investment Banks' published materials on this matter, to construct a well-informed argument for this blog. Our aim is to sift through the prevailing fair-weather thinking and extract the hard facts and home truths.
Attempting not to set a supercilious tone, we will avoid referencing the fact that, as it stands, the housing market seems to be behaving almost exactly as we predicted 12 months ago. The average London house price was 1.2% higher in July than last year, and according to the latest round of published Halifax data, house prices in the capital are now 0.8% up month on month. The average house price in the UK is now at £291,268 as of July 2024. The rate cut we have just witnessed shows that we are now stimulating the buy side of the market without yet having an answer to solve the issues on the supply side, so asset prices will be forced up due to the simple logic of supply and demand economics. Some of the housing market predictions from market participants, such as Savills several months back, may have seemed outlandish. Yet, suddenly, the idea of double-digit percentage increases in the next 18-24 months seems very plausible. Yes, this comes with a vast set of social problems, issues we have discussed many times previously, but in terms of the strength of the asset class, it's never looked as solid.
So, as promised, looking at global economic macro events, is there anything on the horizon that could disrupt our market? The U.S. election, unlike our own, typically does send waves across financial markets and to address some of the supply side issues in UK housing, we do need a return to high levels of global liquidity; the better the global outlook for investors, i.e. the more money there is in the system, the greater the odds are of the some of that loot landing into the projects and infrastructure we need depend on.
The I Newspaper recently ran a story about U.S private equity firms running a strategy of setting up UK housing companies to move capital into UK property acquisition. Companies such as Blackstone, the world's largest alternative asset manager, are moving into these sectors first, as this is the low-hanging fruit; asset acquirement is easier than asset creation, but following that, build-to-rent and social impact will not be far behind. This opportunity is too great to overlook, and ultimately, our supply side will need high levels of private investment.
This U.S. election is unique in the sense that, on the one hand, you have the Republicans, traditionally a pro-business party, led by a pro-business candidate, so you would assume a victory for them would bolster the markets, it would certainly push back on aggressive financial regulation with the focus being on growth. However, the concern on Wall St is how insular and nationalistic the rhetoric has been in this campaign. What could become heightened aggressive trade wars with China, including 60% tariffs on imports, an anti-globalised approach, and a focus on incentivising cash into domestic policy, could trigger the inverse of what we would expect to see, post a Republican victory.
Looking at the Morgan Stanley published investment research, they would favour a Republican win based solely on the fact that when you remove the characters from a campaign, and it comes down to the domestic issues, the state of the country's economy decides who wins. Looking at the data, if a country's GDP is stalling or flatlining, it's very hard for the incumbent party to fight on those issues for fear of more of the same; we saw that in the UK earlier this summer. To look at their research, "slower annualized first-quarter GDP growth of 1.3%, down from 3.4% in 2023’s fourth quarter, corresponding to a 1.4% drop in the president’s approval rating this year"
One interesting point in an article from RBC Brewin Dolphin, which I think perfectly captures the situation, is that "unfunded tax cuts were passed under Trump, and unfunded spending has occurred under Biden. Yet neither Trump nor Harris see reducing the record $35 trillion debt as a priority" and that I think sends a clear message to the market that although policies in any campaigns are a little hazy at best, there are no immediate plans for austerity politics here, frugality has never really been an option in the U.S, it's the land of big portions and big spending, and although borrowing and spending at scale have their own set of big picture consequences, in the short term they create liquidity and opportunity in the markets, which pushes more money into the system including the global investment opportunities here in the UK, particularly in housing, and vehicles that support that, such as our asset class.
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