By Michael Brush
All of this seems bullish for biotech exchange-traded funds iShares Nasdaq Biotechnology /zigman2/quotes/206189322/composite IBB -0.29% and SPDR S&P Biotech /zigman2/quotes/205950134/composite XBI +0.27% as well as core biotech positions in my stock letter like Seagen /zigman2/quotes/203326163/composite SGEN -1.42% , ACADIA Pharmaceuticals /zigman2/quotes/205236646/composite ACAD +2.71% , Incyte /zigman2/quotes/204510994/composite INCY -0.12% 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 /zigman2/quotes/203767197/delayed MPNGY -2.11% , an ecommerce platform that’s like a combination of Amazon.com /zigman2/quotes/210331248/composite AMZN -2.90% , Groupon /zigman2/quotes/207356672/composite GRPN -2.48% , GrubHub /zigman2/quotes/214569449/composite GRUB -3.14% and Uber /zigman2/quotes/211348248/composite UBER -2.07% . He also likes Tencent /zigman2/quotes/207908563/delayed TCEHY -0.68% /zigman2/quotes/204605823/delayed HK:700 +0.79% 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 /zigman2/quotes/202965230/composite CHIQ +0.23% , WisdomTree Trust China ex-State Owned Enterprises /zigman2/quotes/209006653/composite CXSE +0.03% and Schwab Emerging Markets Equity /zigman2/quotes/202378833/composite SCHE -0.41% .
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 /zigman2/quotes/204860242/realtime CNWIX -0.39% . 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 /zigman2/quotes/205084486/delayed LNNGY +3.17% /zigman2/quotes/200624860/delayed HK:2331 +3.39% in branded sportswear, which is like a mix of Nike /zigman2/quotes/203439053/composite NKE +0.80% , Lululemon Athletica /zigman2/quotes/204011506/composite LULU -0.54% and Under Armour /zigman2/quotes/204420722/composite UAA -1.19% . He also likes a Chinese version of SAP /zigman2/quotes/207905606/composite SAP +1.66% /zigman2/quotes/202053813/delayed XE:SAP +1.18% and Microsoft /zigman2/quotes/207732364/composite MSFT -0.51% in cloud computing — a company called Kingdee International Software /zigman2/quotes/205249436/delayed KGDEY +5.89% /zigman2/quotes/202787359/delayed HK:268 +0.89% . “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 /zigman2/quotes/206102986/delayed WXIBF -5.03% /zigman2/quotes/205188469/delayed HK:2269 +0.18% 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 /zigman2/quotes/208157843/delayed DMLRY +0.86% /zigman2/quotes/201850364/delayed XE:DAI +0.46% , Bayerische Motoren Werke /zigman2/quotes/200850296/delayed BMWYY +1.86% /zigman2/quotes/202432319/delayed XE:BMW +1.72% , Volkswagen /zigman2/quotes/204431732/delayed VWAGY +1.09% /zigman2/quotes/203434344/delayed XE:VOW3 +2.24% and Porsche Automobile /zigman2/quotes/208338327/delayed POAHY +1.18% /zigman2/quotes/202769371/delayed XE:PAH3 +1.42% as well as ABB /zigman2/quotes/209404356/composite ABB +1.07% /zigman2/quotes/201477239/delayed CH:ABBN +0.63% in robotics and electrical equipment, James Hardie Industries /zigman2/quotes/200042563/composite JHX +1.31% /zigman2/quotes/201411224/delayed AU:JHX +1.18% in building materials and Iberdrola /zigman2/quotes/205092538/delayed IBDRY -0.37% /zigman2/quotes/202060935/delayed ES:IBE -0.37% , 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 /zigman2/quotes/205971034/composite JPM +1.35% and Bank of America /zigman2/quotes/200894270/composite BAC +1.58% 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.