Wealthy European, Asian Investors Bet on Clinton Victory

  • Wagers come in form of structured notes linked to shares
  • Clinton win seen helping health-care companies; Trump, banks

Armstrong: Expect a Market Overreaction to Election

Rich investors in Europe and Asia are betting on stocks that will rise if a particular candidate wins the U.S. election next week, and one firm says more than 80 percent of its customers’ dollars are wagering on Hillary Clinton.

The trades are coming in the form of bonds whose performance is tied to a group of shares. Leonteq AG, a Swiss provider of structured products, has seen “strong interest” for such notes in Singapore, said Frank Troise, head of digital distribution in the Asian city-state. He declined to provide sales figures, but said that more than four-fifths of the notes his firm has sold have bet on Clinton becoming the 45th President of the United States.

"Investors are voting with their wallets," Troise said. "The expectation is that markets will rally substantially if Clinton does win."

Clinton’s odds of winning were around 66 percent on Friday, according to poll aggregator FiveThirtyEight. Her chances have fallen from 82 percent on Oct. 27, the day before the U.S. Federal Bureau of Investigation said it had reopened its investigation into Clinton’s use of a personal e-mail server.

Swiss bank Vontobel Holding AG is selling structured notes linked to stocks that should perform well if Clinton wins, as well as similar debt that would benefit from a Donald Trump victory. Eric Blattmann, head of public distribution of financial products at the bank and asset manager, reported sales of at least $10 million of notes that profit on either a Clinton or trump win.

A Twist

The Vontobel notes feature an unusual twist: they will only be issued if the candidate that clients are betting on actually wins. If an investor buys Clinton notes and Trump wins, customers will receive their money back.

Both Clinton and Trump notes tend to include exposure to infrastructure companies such as Caterpillar Inc., because both candidates have promised to push for greater investment in highways, bridges and other projects. 

A Clinton win could be a boon for hospital operators such as HCA Holdings Inc. , which may benefit from continued Affordable Care Act subsidies, according to analysts from Credit Suisse Group AG. HCA is in Vontobel’s “Clinton” note, as is United Parcel Service Inc., which could benefit from the fact the candidate is seen as more supportive of trade than her opponent.  

Banks, Defense

Vontobel’s “Trump”certificates are tied to U.S banks including JPMorgan Chase & Co. and Citigroup Inc., as well as military contractors including Boeing Co. and Honeywell International Inc. Trump has spoken about repealing and replacing the Dodd-Frank Act, which requires banks to trim some risk-taking, fund their businesses with more capital, and submit to more oversight. Cutting back or ending that law could boost banks’ near-term profits, and financial companies’ shares have tended to be the most closely tied of any industry to Trump’s chances. Trump has also proposed increases in defense spending.

Leonteq is selling one-year notes that offer relatively high income, but if a candidate loses, the client will lose principal. For example, one Clinton note yields 14.3 percent, and is tied to shares of several hospital providers, including HCA. If one of the stocks drops 35 percent or more, which is less likely under Clinton, the client will lose principal.

One Trump note yields 17.08 percent, and is tied to shares of several student lending companies, including SLM Corp. If one of the stocks falls 35 percent, which is less likely if the real estate magnate wins, the client will lose principal.

While equity-linked notes have been most popular, investors have also bought notes tied to currencies, according to Leonteq’s Troise. A Leonteq note bets on the dollar to strengthen against both sterling and the euro.

“Sentiment is that the dollar will be stronger with a Clinton win. If Trump wins, we could see a market sell-off and the Fed cutting rates which would weaken the dollar,” said Troise.

This story was originally published in Bloomberg Briefs: Structured Notes.

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