31st October 2020 - The Vanda CIO Risk Report - It's (probably) OK to be late next week

Can investors make money on next week’s election even if they decide not to hold any risk into the event?

None

History suggests that the answer is yes.

Since 2013, markets have witnessed 5 major global policy surprises:

•Taper Tantrum in May ’13
•The BOJ’s October Surprise in Oct ’14
•The PBOC’s surprise CNY devaluation in Aug ’15
•Brexit in Jun ’16
•The election of Donald Trump on Nov ’16.

As one would expect, all 5 of these policy surprises engendered a swift and significant reaction in the securities closest to their orbit (Fragile 5 currencies, JPY, HSCEI, GBP and TY, respectively).

Yet, with the exception of Brexit, the full process of price discovery took weeks – not hours or days – to play out. The chart to the left plots these paths.

 

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