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Six PMs on what Biden means for tech, infrastructure, ESG and beyond

With the president-elect setting out his agenda, investors outline their expectations for several key sectors.

LONDON - With Joe Biden set to become the 46th president of the United States in January, market commentators are predicting a strong change in emphasis from the White House. While there may be two months yet until Donald Trump’s grip on the Oval Office desk is removed, fund managers are already preparing for how the new Democratic regime could reshape or impact certain sectors.

We asked six out-performing international fund managers to share their outlooks.

Scroll through the slides to read their views.

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LONDON - With Joe Biden set to become the 46th president of the United States in January, market commentators are predicting a strong change in emphasis from the White House. While there may be two months yet until Donald Trump’s grip on the Oval Office desk is removed, fund managers are already preparing for how the new Democratic regime could reshape or impact certain sectors.

We asked six out-performing international fund managers to share their outlooks.

Scroll through the slides to read their views.

European equities

Giles Rothbarth, co-manager, BlackRock European Dynamic fund

Europe is home to numerous gems – spectacular companies, ‘giants in niches’, leaders in their fields – many of which could benefit from a Biden victory. The luxury sector is a good example. We see the election of Biden to president as a likely tailwind to this industry given the potential for more trade-friendly policies.

While we believed Europe’s best positioned luxury goods companies would likely be able to offset any tariff-related pressures with price increases, there were market concerns given their acute inability to shift production to other geographies. Cognac cannot be produced in Tennessee.

Europe also is a strong beneficiary of the global transition to a lower carbon economy. The EU’s growth plan focuses on climate and digital transition to drive competitiveness, with 80% of the EU recovery fund targeted towards these projects. Biden’s desire to realign to the Paris agreement is a further tailwind to this structural growth trend, and we expect our companies to play an active role in any acceleration of US capacity build-out.

Nevertheless, with a change in the presidency we are mindful of the translational impact of a potentially lower US dollar. Equally, any tax rises or changes in regulation, particularly across the tech and healthcare sectors, could also act as a headwind.

However, given the likely composition of the Senate, we see meaningful regulatory change less likely, so remain cautiously optimistic on this risk. In the near term, the virus and vaccine dynamics are likely the key driver for European markets.

Technology

Amanda Lyons, investment manager, GAM Disruptive Growth & Technology fund

Regulation in the tech sector is unlikely to be a top priority for Biden post-election. Health and the economy will take priority.

Both Trump and Biden had made it clear they want to repeal Section 230 of the Communications Decency Act, which was enacted in 1996 to make the internet more commercial. Their opposition to the act, though, is coming from polar opposite angles. Trump was concerned conservative voices are stifled, while Biden is more worried about harmful content.

To date, Biden has said little on big tech and has no clear tech policy advisors; he has said in interviews he is more interested in content moderation than competition policy. However, House Democrats have put forward a report advocating major changes to anti-trust laws aiming at limiting companies’ ability to acquire smaller competitors and to place restrictions on selling their own goods in their own marketplaces. This would impact Amazon in particular.

Anti-trust laws would also be expanded to cover ‘harm to workers and innovation’, rather than just harm to the consumer.

This is a big deal, as the main line of defence for companies is that the consumer is getting their products for free, therefore where is the harm? The report also proposes increased funding to the Federal Trade Commission, which is currently held back by budget constraints.

If Biden were to support this report it could be a big negative for tech; anti-trust can take years to go through the courts and would likely end up in the Supreme Court.

Credit

Fraser Lundie, head of credit at the international business, Federated Hermes

When combined with a Republican Senate, Biden’s victory arguably paints a goldilocks picture for credit spreads – or rather ‘gridilocks’. As Biden delivers stimulus and more centrist politics, and takes a more collaborative stance toward international peers, the Senate may well act as a hand brake on tax rises and regulation. 

We see this as being somewhat optimistic and we would highlight that even with the possibility of a vaccine, the winter months threaten an up-tick in coronavirus cases in the US and the potential for a more stringent policy response from a Biden administration. Additionally, we see a number of key issues facing considerable uncertainty under a Biden administration.

The Trump administration put through a tax bill in 2017, with the help of congressional Republican support, that cut taxes on corporations and high earners. Biden will likely revisit this with a view to reversing it. 

Were this to happen, it would weigh heavily on the recovery from the pandemic, with industries such as technology and finance – beneficiaries of tax cuts – being hit the hardest.

Biden will be far less supportive for energy and has spoken in favour of restricting fracking on Federal lands. While undoubtedly a negative for the E&P players, efforts to slow fracking be slowed in legal challenges, but supply may be boosted by an agreement with Iran, putting downward pressure on prices. 

Environmental impact

Luke Barrs, head of fundamental equity client portfolio management, Goldman Sachs Asset Management

The Biden administration is expected to put the fight against climate change and the need for greater environmental sustainability back at the top of the policy agenda. Realigning with the Paris agreement on day one and targeting carbon neutrality by 2050 could channel a wave of growth, innovation and capital to the green economy.

Clean energy, the circular economy, electric vehicles and other green technologies have long been areas in which the US has lagged Europe and China, where adoption rates are higher and innovation has been stronger. But, with many green technologies now economically viable, even without government subsidies, this shift in focus in the US can add further impetus to the ongoing global transformation.

With governments, companies and consumers committed than ever before to make a change, we believe we are in the early stages of a green revolution that can rival the scale of the industrial revolution and the speed of the digital revolution. Against this backdrop, we believe the companies providing impactful solutions to key environmental issues can benefit from meaningful secular demand tailwinds over the coming decades and we remain over weight these ‘solution providers’ across our portfolios.

US infrastructure

Thomas van der Meij, portfolio manager, Kempen Listed Infrastructure

Joe Biden will bring the US back into the Paris agreement, and has ambitions to boost infrastructure spending by $2tn over his first term. De-carbonisation and modernisation are on the agenda for US infrastructure – think green and digital. De-carbonisation goes beyond the power sector, as we see in transportation with EV charging infrastructure roll-outs.

The ambitions are set, but the Republicans could still hold their Senate majority, making it challenging to implement major climate reforms. As such, Biden’s ambitions for a carbon-free power sector in 2035 could slip.

De-carbonising from the earlier phase-out of coal, and investments in renewables will continue – and could even be accelerated by supportive regulation and tax credits. We expect continued switching from coal to gas for the energy transition.

Changes in Washington will be supportive for the energy transition, but US electric companies are state-regulated, and mainly dependent on state-level climate and energy policies. Several US utilities companies were already on their own multi-year de-carbonisation pathways, without the White House.

Investments and supportive regulation will result in stronger growth, while the private sector will be incentivised to expand and upgrade their assets – benefiting both the owners of the infrastructure and the construction sector. As such, infrastructure, being core to the energy transition, offers investors attractive secular growth.

Global thematics

Steve Wreford, portfolio manager, Lazard Global Thematic Focus fund

The application of technology and structural drivers behind the digitisation of the global economy, be it through the automation of factories or the introduction of fintech in emerging markets, are immune from the sort of policy changes that might be introduced by a new Biden government.

While the recent outcome of the US election will have no direct effect on the attractiveness of the majority of long-term structural themes we invest in, one area with the potential to be impacted by political change is Extreme Risks, which aims to protect against the consequences of the end of monetarism. We believe that long-standing global political and economic frameworks are in the process of undergoing long-cycle change.

The current global monetary system, based on the US dollar, is under great strain. The portfolio therefore has exposure to both gold and high-quality gold miners.

Gold is an un-printable currency and may have an important role to play as we reach the limits of monetary policy and excessive levels of debt. Many currencies face the prospect of devaluation and longer term inflation may raise its ugly head again.

Beyond this, US companies in general will benefit to the extent that the new Biden administration is constrained by its failure to capture control of the Senate from introducing higher corporate taxes. More broadly the reversal of Trump’s trade policies which have seen the introduction of import tariffs, which in turn have had a negative impact on the growth of world trade, will also bolster a number of companies around the world.

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