By Michael Brush
Elections have consequences, as they say — especially for investors. Here’s a roundup of the key changes for investors following the presidential election, under the assumption that the Senate remains split after Georgia’s runoff elections.
Now that politicians may be less inclined to posture on COVID-19 policy to win votes, we might see more constructive strategies that’ll be much less devastating than broad economic shutdowns or angling for herd immunity, believes epidemiologist Michael Mina.
One can hope.
He’s got a good strategy in mind, that already seems like it is getting traction among Joe Biden COVID-19 task force members. The cornerstone of Mina’s approach is the distribution of lots of cheap but effective paper-strip rapid tests that people use at home. If infected, they can self-quarantine to prevent the spread.
“We can’t treat everyone like they are positive every day and just ask people not to gather,” says Mina in reference to the upcoming holidays. “We can’t just pause society.”
Likewise, opening up the floodgates to go for herd immunity would cause lots of premature deaths and possible hospital overcrowding, cautions Mina, of the Center for Communicable Disease Dynamics at the Harvard T.H. Chan School of Public Health.
“One of the best things we could do is empower people to know if they are more likely to transmit the virus so they can make educated decisions. The way you stop an outbreak is to know your status, just like we did with HIV,” he said.
He estimates this would cost $10 billion a year – not much considering that it might save trillions of dollars in lost economic output and stimulus spending.
Mina has been promoting this strategy for months, to no avail. “This is something the current administration could do,” he says. “I know there are people in the administration who want to use rapid testing. We don’t have to wait until the administration changes.”
That said, Mina believes the Biden administration will rely more on science and experts to create a better virus strategy than what we have now – including rapid tests.
The Pfizer (NYS:PFE) vaccine news does not take away the need for rapid testing, since it may be a year before vaccines are available to all risk groups notes Brian Weinstein, a health-care sector analyst at William Blair.
Meanwhile, infection rates will keep ramping up this winter. Plus it’s not clear how many people will use the vaccine, because of safety concerns, says Deutsche Bank market strategist Marion Laboure. “Until a vaccine is ready or herd immunity is achieved cheap, fast tests may be the solution,” says Laboure.
For more information on Mina’s rapid test idea, click here .
Even with Biden in the White House, the risk of drug draconian pricing reform is much lower when the Senate and the House are controlled by different parties. The good news is that Biden will likely preserve and expand the Affordable Care Act which is good for biopharma companies, notes Jefferies analyst Peter Welford.
All of this seems bullish for biotech exchange-traded funds iShares Nasdaq Biotechnology (NAS:IBB) and SPDR S&P Biotech (PSE:XBI) as well as core biotech positions in my stock letter like Seagen (NAS:SGEN) , ACADIA Pharmaceuticals (NAS:ACAD) , Incyte (NAS:INCY) and Alexion Pharmaceuticals .
President Donald Trump’s approach to foreign relations ruffled a lot of feathers. Things should calm down under Biden, says Fall Ainina, deputy director of research for James Investment Research. He thinks friction with China will ease, and that will help stocks in Chinese markets.
One of his favorites is Meituan (OTC:MPNGY) , an ecommerce platform that’s like a combination of Amazon.com (NAS:AMZN) , Groupon (NAS:GRPN) , GrubHub (NAS:GRUB) and Uber (NYS:UBER) . He also likes Tencent (OTC:TCEHY) (HKG:HK:700) in mobile games and online payments.
For a broader approach to investing in China and emerging markets, consider the exchange-traded funds Global X MSCI China Consumer Discretionary (PSE:CHIQ) , WisdomTree Trust China ex-State Owned Enterprises (NAS:CXSE) and Schwab Emerging Markets Equity (PSE:SCHE) .
Next, under Trump we’ve seen lots of foreign-policy surprises like his erratic approach to tariffs and NATO, sudden restrictions on WeChat and Tik Tok, and talk of limits on Chinese stocks in government pension funds and private retirement accounts. All of this has kept investors guessing, and they hate uncertainty.
“I think in a Biden administration these types of surprises will happen less often,” says Nick Niziolek who helps manage the Calamos Evolving World Growth Fund (NAS:CNWIX) . He thinks a more telegraphed foreign policy will be bullish for Chinese stocks. He favors inward-facing companies that benefit from President Xi Jinping’s emphasis on developing domestic consumption as the next leg of growth.
Niziolek cites Li Ning (OTC:LNNGY) (HKG:HK:2331) in branded sportswear, which is like a mix of Nike (NYS:NKE) , Lululemon Athletica (NAS:LULU) and Under Armour (NYS:UAA) . He also likes a Chinese version of SAP (NYS:SAP) (ETR:XE:SAP) and Microsoft (NAS:MSFT) in cloud computing — a company called Kingdee International Software (OTC:KGDEY) (HKG:HK:268) . “It’s positioned well to be a local champion,” says Niziolek.
He is worth listening to. His Evolving World Growth Fund beats the MSCI Emerging Markets Index and competitors in its diversified emerging fund category by 8.7 and 9.1 percentage points annualized over the past three years, according to Morningstar.
China’s latest five-year plan also favors biotech. Here, Niziolek likes Wuxi Biologics (OTC:WXIBF) (HKG:HK:2269) in drug manufacturing and research and development support. It’s a “picks and shovels” play on Chinese biotech.
European stocks may benefit, too, since many sectors there have been singled out for tariffs. This risk may diminish under Biden, says Ainina. He cites the European car makers Daimler (OTC:DMLRY) (ETR:XE:DAI) , Bayerische Motoren Werke (OTC:BMWYY) (ETR:XE:BMW) , Volkswagen (OTC:VWAGY) (ETR:XE:VOW3) and Porsche Automobile (OTC:POAHY) (ETR:XE:PAH3) as well as ABB (NYS:ABB) (SWX:CH:ABBN) in robotics and electrical equipment, James Hardie Industries (NYS:JHX) (ASX:AU:JHX) in building materials and Iberdrola (OTC:IBDRY) (MCE:ES:IBE) , a Spanish utility.
Both money managers expect emerging markets will do well because of all the stimulus pumped into economies around the world to fight the COVID-19 economic slowdown.
This might be bad for the recovery. But you have to wonder how much it really matters. There’s already a lot of monetary and fiscal stimulus. It is at all-time record highs relative to GDP – much higher than the amount of stimulus used during the Great Recession.
I continue to favor cyclicals in areas like banking, industry, materials, emerging markets and energy. I’ve recently cited JPMorgan Chase (NYS:JPM) and Bank of America (NYS:BAC) as examples, and I’d still own them despite the 10%-15% gains this week.
Since the White House controls the various federal agencies, the president can do lots of regulatory reform regardless of what Congress thinks. Under Biden, expect stepped-up regulation on banks, financials and the fossil-fuel sector. It might help consumers and the environment, and that’s a good thing. But it won’t be good for business.
I’m still bullish on these groups anyway. They are great examples of the kinds of cyclical sectors that outperform as we move into a stronger growth phase for the economy from recession. This is what will play out over the next six to 12 months because of all the stimulus.
With a split Congress, the odds of a trillion-dollar aid package to bail out state and local governments are much lower. This could be bad news for places like Illinois, New Jersey and Chicago, which had shaky finances going into the COVID-19 epidemic. Now, with lower tax revenues and higher expenses because of the virus, the debt issued by these entities looks even more dubious.
“The ones with the biggest problems are the ones that have had big problems for years,” says Lyle Fitterer, a senior portfolio manager at Baird Advisors, citing the governments above. He’s underweight their debt. And what he does own has shorter duration, which can reduce risk.
But it’s not all bleak. “You can always find good bonds in bad markets,” he says. He shops for bonds backed by dedicated revenue from things like water and sewer service.
Next, it’s still possible the federal government will come to the rescue with a more modest aid package. And troubled states still have ways to fix their budgets. “We are not in the camp that any of them are close to defaulting. They have a lot of levers,” says Fitterer.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned ACAD, JPM and BAC. Brush has suggested IBB, XBI, SGEN, ACAD, INCY, ALXN, NKE, MSFT JPM and BAC in his stock newsletter, Brush Up on Stocks. Follow him on Twitter @mbrushstocks.