Wherever the journey is going: New US President Joe Biden: Which US investments are now worthwhile | message
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by Christoph Platt, Euro am Sonntag
A.When it was established on November 7th that Joe Biden had enough electoral votes to become the 46th President of the United States, cheers broke out in many major cities. Fans of the Democrat gathered in the streets and partied, cars honking their horns. People clapped outside the White House in Washington.
It is now clear that Biden has been able to push the number of his electoral men and women well above the 270-vote mark required for an election to the presidency. Even if Donald Trump initially defends itself against it with all means.
At the same time it is becoming clear that in the Senate – one of the two chambers of the US Congress – the Republicans will continue to have the say. Runoff elections are still pending in the state of Georgia. But it is unlikely that two Democratic senators would win there and that their party would in fact gain a majority.
The capital markets are satisfied with the election result. They had feared a “blue wave”, a dominant Democratic victory in the Senate, in the House of Representatives and in the presidential election. In such a case, many of the Democrats’ plans could have been implemented comprehensively – not always to the taste of the economy and financial markets.
Now with Biden, a Democrat is the US president, but the Republicans have power in the Senate. That should lead to a more moderate policy that has to look for compromises. “Without a blue wave, Biden is forced to pursue a middle-class policy,” says James Tierney, portfolio manager at AllianceBernstein. “That is good in view of the political polarization of the past decade.”
One of the winners of the choice from a business perspective are technology companies. They are now less likely to be targeted by politicians than feared. “If the Democrats had succeeded in marching through, there would have been a lot of discussions about the splitting of the large, very dominant tech companies,” says Thomas Meier, Portfolio Manager at MainFirst Asset Management. Such strict measures are now probably off the table.
Stricter supervision of the pharmaceutical industry is also unlikely to come about in this political constellation. Biden had announced that he wanted to control drug prices more closely. “Regulations in the form of drug price controls and the introduction of general health insurance are unlikely to be approved by the Republican Senate,” says Shamik Dhar, chief economist at BNY Mellon. “We can expect a huge increase in investments, for example in hospitals, drug development and medical devices.” This makes the health sector one of the biggest winners of the election.
Furthermore, significant adjustments to the tax system are hardly enforceable for Biden. The Senate would not support higher corporate taxes, one of the pillars of his election campaign. In the current situation, the future president is unlikely to have any interest in increasing the burden on companies, because the corona pandemic has severely affected the economy. This move, which would hurt corporate profits, is now on hold. “That helps large international corporations,” says AllianceBernstein manager Tierney.
On the other hand, Biden will immediately tackle a huge economic stimulus package to help the ailing economy. Support measures are likely to be in the range of $ 100 billion to $ 150 billion. Some of this could go to infrastructure projects, an area that Biden attaches great importance to. According to his election manifesto, $ 970 billion will be made available for this in the coming years. Infrastructure companies are therefore also among the election winners.
The challenge of climate change
Biden wants to put more than twice as much money into measures to combat climate change. Its plans include spending of two trillion dollars. Companies that work in the field of renewable energies should benefit significantly from this. Oil companies, on the other hand, are seen as losers because the share of fossil fuels in total consumption is to be reduced. But experts warn against writing off the industry too quickly. “There will be no rapid departure from oil, the oil industry in the USA is far too important for that,” says MainFirst manager Meier.
In Europe, satisfaction with Biden’s choice is high in many places. That has less to do with the person of the future president and more to do with the relief of no longer having to do with the rumbling Trump, who often provided fuel economically and politically. “German companies can look forward to a more rational US economic policy and more reliability,” says Meier. “That strengthens your investment security.”
However, companies and investors cannot expect that Biden will pursue a very liberal international economic policy. He, too, will put the well-being of the US first and continue a certain protectionism, albeit less strongly than Trump. “Biden will try to bring important production chains and jobs in the manufacturing sector back to the US,” says Alan Levenson, US chief economist at T. Rowe Price.
This includes a critical stance towards China. Biden, for example, is likely to put pressure on Beijing regarding intellectual property theft. However, he will not proceed quite as aggressively as Trump. Experts suspect that Biden’s presidency will have a positive impact on China and generally on Asia’s economy and stock markets.
In order to invest widely in the US stock market, investors can use a number of funds. Three recommended portfolios can be found in the investor info on the left. In the short term, the pandemic may paralyze the country, but in the long term the market remains promising. In any case, the political environment is promising: the historical data shows that investors made the highest profits when a Democrat was president and shared power in Congress.
T. Rowe Price’s US Large Cap Growth Equity Fund focuses on high-growth blue chips from North America. The portfolio includes companies with competitive advantages that are able to rapidly increase their profits and cash flows through innovation and change. The giants Amazon, Microsoft and Alphabet are currently the three largest positions in the fund, which allows entry into important US stocks.
AllianceBernstein’s Sustainable US Thematic Portfolio looks for companies with excellent environmental or social behavior. At least 80 percent of the titles have to come from the USA; foreign companies that are heavily active in the USA are also possible. The portfolio includes typical green stocks such as Nextera Energy or Vestas Wind Systems, but also companies that are better than their competitors in terms of sustainability.
Small businesses are usually more profitable than large ones. But in the United States, the big tech companies in particular have shone in recent years. With the JP Morgan US Small Cap Growth Fund, investors rely on the catch-up potential of small caps. The health care sector makes up almost a third of the portfolio, allowing shareholders to participate in Biden’s plans to invest in the industry.
Image sources: Stratos Brilakis / Shutterstock.com, chrisdorney / Shutterstock.com