Thematic investing for 2030
2030 may seem a long way away, but investing is all about the future – finding the companies that...
On 20 January 2021, Joe Biden will be inaugurated as the 46th president of the United States. One thing is for sure: White House rhetoric is likely to be very different for the next four years. But what does it mean for US equities?
Darius McDermott, managing director of FundCalibre, gives his thoughts:
“Biden’s election and, more recently, the Democrats taking control of the Senate has temporarily boosted value stocks, but I expect more of the same from last year – namely that growth and tech stocks will do well.
“The new administration has a slim majority so, to quote a spokesperson from JP Morgan, “it’s a blue ripple rather than a blue wave”. But stimulus is likely to be greater, and big reform less likely in areas like technology and healthcare, which is good news for markets. Tax rises are also unlikely before 2022, as Biden will want to get the pandemic under control and then the economy back on its feet first.
“A lot of the money from stimulus cheques will be spent and some will also find its way into the stock market. Interest rates will stay low. The one thing I will be watching out for is signs of inflation. If it picks up in a big way, then all bets are off.”
“I expect tech stocks to do well as restrictions and lockdowns will continue for some time as we wait for vaccines to be rolled out. The US market is expensive, but these companies continue to deliver huge earnings growth,” Darius continued.
“There is likely to be some commentary about whether tech will get regulated because that is a traditional Democrat talking point. But Vice-President elect Kamala Harris was Attorney General of California and oversaw the rise of the big tech firms – they even supported her political ambitions at one point – so I suspect they will be fine in the end. And even if they are forced to break up, this is likely to only increase their value.”
“The level of spending on low carbon and/or positive environmental policies in the Biden campaign is potentially enormous. He has already pledged to make re-joining the Paris Agreement one of his first acts and will be pushing for a net-zero target by 2050, 100% zero-carbon electricity by 2035 and for buildings to be made more energy efficient,” said Darius.
Deidre Cooper, co-manager of Ninety One Global Environment, commented: “We would expect the tax credits for renewable energy to be further extended as part of the stimulus and, crucially, a separate tax credit for energy storage to be implemented.
“A Democrat-appointed Federal Energy Regulatory Commission should also help, as will faster permitting for offshore wind farms which had been consistently delayed by the Trump administration. This implies significant upside for leading wind developers and companies in their supply chains, such as turbine-blade makers. Additional upside for solar is more muted, just because the growth outlook is so strong anyway. Any targeted energy efficiency upgrades to buildings would be a strong tailwind for companies that provide solutions for heating, cooling and powering buildings more sustainably.
“We would also expect the 200,000-vehicle-per-automaker cap on the current US$7,500 incentive for electric vehicles to be removed and emissions standards for automotive OEMs to be tightened. This would be a tailwind for the diverse companies in the electric-vehicle supply chain, from makers of battery components to suppliers of sensors, software and power semiconductors.”
“The $2 trillion stimulus to ‘build back better’ will benefit more than just renewables,” said Darius. “There has been chronic underinvestment in critical assets in the US for many years (US government spending on transportation and water infrastructure for example is at a 55-year low) and there is urgent need for repair, modernisation and expansion. So higher infrastructure spending –albeit with a clear emphasis on renewables – will have an impact on a number of areas.”
“A Democratic President in the White House should set a cautionary tone for the healthcare industry,” continued Darius. “However, with the Senate split 50:50, and the Vice-President carrying the tiebreaking vote, reform is still possible but highly disruptive changes to law are unlikely.”
James Douglas, co-manager of Polar Capital Global Healthcare Trust commented: “Biden’s focus is likely to be building on and investing in the current healthcare system, known as the Affordable Care Act (ACA), and addressing the high cost of prescription drugs. Investing in the ACA and lowering the eligibility age for Medicare are both positives for the insurance industry given the positive volume implications. A public insurance option, which he may consider, could present a challenge but only if administered and underwritten by the Federal government.
“With bipartisan support, addressing the high out-of-pocket costs for prescription drugs, especially for US seniors, is a directive that will likely have traction. But a divided Senate is unlikely to support the more draconian policies. Regardless of the potential changes, the message to the bio-pharmaceutical industry is very clear: innovate and target unmet medical needs because pricing pressure is here to stay.”
“Biden’s approach to China is likely to be similar, with tariffs remaining, but the relationship should be less volatile,” Darius said. “Legal and General also highlight the possible ‘wildcard’ of Biden making a forceful response to December’s hacking revelations allegedly involving Russia. But overall, the new administration should be a positive for emerging markets. In the medium-term, supportive stimulus policies in the US will also tend to push up global economic growth, which is supportive of emerging market currencies.”
Magna Emerging Markets Dividend co-manager, Ian Simmons, added: “A Biden victory and a multi-billion dollar stimulus plan in the US could benefit parts of the world represented in emerging markets in two ways. First, a large increase in infrastructure spending may be supportive for commodity prices, which tends to support emerging market government spending decisions and consumer confidence. Secondly, the money printing or borrowing required to fund this stimulus may prompt a weaker dollar – normally a supportive factor when thinking about returns from these countries.”
*Source: Fund factsheet, 30 November 2020