Investors have less than a week to prepare their portfolios for the outcome of the American elections.
Democrat candidate Joe Biden is currently leading the polls and looking strong in some of the swing states. Experts predict that a Biden win, especially if his party also manages to take control of the Senate, could usher in sweeping changes that would affect stock markets.
Kevin Boscher of Ravenscroft, an investment manager, described this as the “least favourable outcome” for investors. It would give the Democrats greater scope to pursue proposed policies such as increasing corporate taxes, particularly for companies with large earnings.
Mr Biden has also suggested toughening up regulation on pharmaceutical and technology companies, which have been some of the biggest drivers of growth in the American stock market this year.
However, while the party is likely to raise taxes, it also plans to increase spending – which is usually good for the economy. Mr Biden has promised to invest in making the country more environmentally friendly, meaning that businesses involved in clean energy and green tech should benefit.
A re-election for Donald Trump would probably result in the status quo being maintained.
His administration has been broadly positive for stocks, with markets rising steadily since he took office in 2017. Mr Trump has expressed support for another round of tax cuts – which is likely to benefit the same companies that would be hurt by a Democrat attack on big corporations.
A Republican presidency would also be good news for the tech and healthcare sectors, as they would sidestep the possibility of new regulations and restrictions ushered in by Mr Biden.
Stocks to buy for a Biden win
One of Mr Biden’s promises is to install 500,000 new public charging points for electric cars and offer tax incentives to people who buy these vehicles.
Sam Corbet, also of Ravenscroft, said the firm had recently invested in BMW as it expected the car maker to get a boost from the move towards greener transport in America. “We like BMW because we think its bold electrification strategy remains under the radar and is not yet factored into its share price,” he said.
“The company will be launching a wave of highly competitive electric models in America in the next few years and Biden’s policies could be a useful catalyst.”
Silver miners could be another beneficiary of a move towards a greener economy, said Paul Danis of Brewin Dolphin, a wealth manager. The precious metal is used in cells that convert light into electricity. One exchange-traded fund that gives investors exposure to silver is the Global X Silver Miners ETF.
Those who want to invest in the move towards renewable energy without backing individual firms could consider a fund or investment trust that specialises in this area, such as Impax Environmental Markets.
Stocks to buy for a Trump win
Although the tech sector is likely to fare better under a Republican administration, not all stocks will benefit equally.
Mr Trump has called for a crackdown on social media firms such as Twitter and has criticised Amazon.
Rob Burgeman, also of Brewin Dolphin, said: “The tech stocks that are likely to do better if there is a Trump win are those that are less politically exposed, such as Microsoft and Applied Materials, which makes hardware for the semiconductor industry. Although Microsoft owns networking site LinkedIn, it is not heavily exposed to social media.”
Among healthcare stocks, Mr Corbet said Illumina, which does research into genetics, and Edwards Lifesciences, which specialises in medical technology, were two high-quality companies in this sector.
“We think these will do well regardless of the election result, although both are a bit expensive. So even if Biden wins and share prices of healthcare companies fall, we would see that as an opportunity to invest,” Mr Corbet said.
Investors could take a broad approach and own a basket of healthcare or technology stocks via investment trusts such as Worldwide Healthcare.
Does the result matter?
Generally speaking, politics has had little impact on American stocks, said Robert Siddles, manager of the Jupiter US Smaller Companies fund.
“True, the prospect of a Democratic clean sweep – which has not happened since 1992 – should make investors nervous,” he said. “But we are more focused on avoiding companies that could suffer in a post-Covid recession, like airlines and hospitality groups, than ones that could be affected by the election.”