What does the US election mean for investment in the region?

Ahead of the US election race closing today, Jeremiah Buckley, portfolio manager at The North American Income Trust (NAIT) and Alex Crooke, fund manager of The Bankers Investment Trust (BNKR) comment on:

• The biggest opportunities for stockpickers in the US
• The impact the election will have on the market
• The biggest risks facing US investors
• Sectors that will benefit from a Harris or Trump winning
• Sectors that will remain unaffected

Jeremiah Buckley, portfolio manager at The North American Income Trust (NAIT):

Biggest opportunities for US stockpickers

 
“We do continue to think there are attractive opportunities in the Information Technology sector as we believe the demand for Infrastructure to support the substantial demand for Generative AI will continue for years which makes us still want to be overweight semiconductors.  We also believe there will be a number of attractive applications using AI that make significant progress in the marketplace over the coming years and want to continue to be overweight software and IT services.

“Outside of technology, we are finding attractive opportunities in Healthcare and in REITs.  Given the underperformance in REITs over the last couple of years and the prospects for lower interest rates, we feel that REITs offer very attractive income opportunities currently.  In healthcare, we continue to find attractive ideas that are both defensive and offensive.  We believe these businesses will hold up well if we see a greater than expected macro economic slowdown.  However, with the impressive level of innovation in biotech and medical devices right now, we should see attractive relative earnings growth even in a stronger economy.

“More broadly, we continue to be excited about the innovation and productivity gains that US companies continue to drive through capital and R&D spending.  The investments required to stay relevant and prosper in the new digital economy are significant and hence favor the largest companies that lead their industries.  Having large amounts of data that can inform strategy and execution has become critical which favors large-cap equities.”
 

The impact of the election on markets

 
“The election results could cause some volatility over the short-term for markets, but we don’t believe the result will have a meaningful impact on the medium to long-term outlook for US equities.  When we look at history, there hasn’t been a material difference in the performance of the US equity market when either party has the presidency and there are numerous examples of strong performance when each party has held the top office.  I think the best outcome might be if we have a split government where neither party has control of all three branches, making it harder to push through new legislation and forcing the parties to compromise, potentially creating less uncertainty around policy and limiting any dramatic shifts.”
 

The biggest risks facing US investors

 
“The two largest risks we see for investors in the US are whether companies get a solid return on all the capital spending in Generative AI that is currently taking place and whether the job market can at least maintain its current level of growth.  On AI related capex, since AI is such a transformational technology with substantial potential, companies are spending at rapid rates to make sure they participate in this paradigm shift.  There is risk that the returns on this spending don’t materialize as expected which could lead to a rationalization period of capital and R&D spending in the US which could lead to a material slowing in the economy.

“The other risk we see is the concentration of the job gains in only a couple of sectors within the US economy.  The hospitality, healthcare, and construction industries have contributed the vast majority of the private sector job gains in recent months and we worry that these industries will slow so we will need other areas of the economy to contribute stronger job gains to keep the overall job market healthy.  We worry that the hospitality and healthcare sectors are getting close to fully recovering from the pandemic pullback and there are signs that leading indicators for the construction sector are weakening.   Thus, we are looking for more sectors to start contributing to job gains in a material way for the healthy job market we are currently seeing to persist.”
 

Alex Crooke, fund manager of The Bankers Investment Trust (BNKR):

Will the election impact the US stock market?

 
“Election years tend to be positive years for the US equity market. Incumbent Presidents usually prime pump the economy to deliver a positive story on their economic record. There have historically been some notable sector level stock moves during election campaigns, notably Hilary Clinton’s focus on the pharmaceutical sector’s overpricing of drugs. However, in general candidates tend not to be too vocal on specific sectors or companies during campaigns.”
 

Which sectors will do well if Kamala Harris wins?

 
“Harris has been non-committal on outlining firm policies leading into the election. She has generally promised to maintain Biden’s economic stance of promoting US interests, manufacturing and sustainable projects. We would expect utilities, technology and semi-conductors to be key sectors that should benefit from her policies, as they have during Biden’s presidency.”
 

Which sectors will do well if Donald Trump wins?

 
“Trump has often talked about higher trade tariffs against international competitors. These will likely lead to higher inflation as prices are increased to pay for the tariffs. Beneficiaries of higher tariffs will include domestic manufacturers, such as energy, chemicals and machinery sectors. If Trump were to cut corporate taxes further then the higher tax paying industries such as Healthcare, Utilities and Retailers will benefit most.”
 

Which type of companies will do well irrespective of who wins?

 
“Financials look to be least affected by both candidates. Trump has vocally called for a change in the head of the SEC, the main US financial regulator but generally the financials appear to be least touched by proposed policies.”

How the election result will impact on the wider macroeconomic environment?

“Harris’ proposed policies have largely been limited to domestic matters, therefore the widest impact on the macroeconomic environment is likely to come from the higher tariffs on overseas companies selling into the US that Trump has been espousing. Will overseas countries react by imposing their own tariffs on US companies? Will they react by taxing the large US technology companies, who have significant overseas operations? History tells us that imposing tariffs tends to be a zero sum game, with prices rising to offset the charges and other countries imposing their own tariffs. The loser tends to be consumers through higher prices.”