Invesco Sees Opportunity in Risky Assets Amid ‘Chaotic’ Election

(Bloomberg) -- Invesco Ltd.'s Talley Leger is advising investors to look beyond U.S. election-related volatility toward an eventual global economic recovery by betting on risky asset classes.

The recent U.S. equity sell-off was a “risk-shedding event” that provides an opportunity during an election year, the firm's senior strategist said by phone. Historically, U.S. stocks have performed well in the runup to elections. Combined with lower-for-longer interest rates, the creates a good opening to bet on risk assets, he said.

“Use it as a buying opportunity and focus on more important underlying macro-economic fundamentals, such as interest rates and monetary policy,” Leger said.

Equities are likely to keep outperforming bonds, where valuations are “extremely stretched,” according to Leger, who helps oversee about $1.1 trillion of assets at the Atlanta, Georgia-based investment-management firm. He recommends that investors rotate into cyclical stocks and smaller-cap companies, as they will likely to lead the charge as the economy starts to recover.

Within commodities, gold is likely to benefit from low interest rates, loose monetary policy and coronavirus fears. However, it's likely that industrial metals will outperform precious metals as the global economy gradually recovers, Ledger said.

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Robeco's View

At Robeco Institutional Asset Management, which has $174 billion of assets under management, strategist Peter Van Der Welle recommends finding opportunities outside of North America amid the U.S. election volatility. Italian sovereign bonds would be an effective hedge, given the backing of the ECB and potential for further upside, he said.

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Japanese and European equities are among Robeco's top picks, and its is slightly underweight U.S. stocks heading into the election. The firm is a bit cautious on commodities in the short term as the sector is “running on fumes and in need of refill,” Van Der Welle said.

Sprott's Bull Case for Gold

While the election is shaping up to be “quite unpredictable and chaotic,” a Democratic sweep of the White House and both houses of Congress and a smooth transition of power would lead to a much larger fiscal stimulus bill to be passed very quickly, Paul Wong, market strategist at Sprott Asset Management LP, said in a recent report.

Such a scenario would probably increase debt by $2 trillion to $3 trillion, pressuring the U.S. dollar and raising break-even yields. This will be “very bullish” for gold as it will result in deeper negative real rates, he said.

Meanwhile, a contested-election scenario would result in “market chaos,” leading to increased quantitative easing by the Federal Reserve and also boosting gold, Wong said.

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