Elections

Modi and the BJP are at or near the peak of their political dominance, and their third term will be challenging as they must deal with harder reforms amidst a slowing domestic and global economic environment. In the long run, however, we remain constructive on India’s prospects, as its geopolitical and economic positioning are favorable and improving.

Mexico’s election and the US election pose short-term and potentially medium-term risks to Mexican financial assets. But unless the ruling party wins a double supermajority, we remain structurally overweight Mexico relative to global stocks excluding the United States.

Investors should prepare for economic data to weaken even as policy uncertainty and geopolitical risk skyrocket ahead of the US election.

Our quant models suggest Democrats are still slightly favored for the White House. Our Senate model favors Republican control, though Montana and Ohio are the weak links that could deliver Democrats a de facto Senate majority in the event they keep the White House. But there are still six months before the vote. An oil shock from the Middle East or other negative economic news would force a major change to these models.

In the near term, favor oil and oil producers outside the Gulf Arab states. Over a 12-month horizon, favor US and North American equities, defensive sectors over cyclicals, and safe-assets. Within cyclicals, stick to energy and defense.