• Democrat Joe Biden is heavily favoured to become US President on November 3
  • “Biden stocks” can broadly be said to include pot stocks and EV suppliers
  • “Trump stocks” would include defence contractors and rare earth miners

With just over three weeks until the US presidential election, it’s looking more and more like Democrat Joe Biden will emerge victorious.

Respected prediction site FiveThirtyEight on Friday was giving Donald Trump just a 15 in 100 chance of winning, and betting sites are also giving the Democrats strong odds to capture the Senate.

This probably wouldn’t be great for global markets, analysts say.

“The Republicans are always going to be better for the stock market and business in general,” said Australian Stock Report senior analyst Ben Le Brun.

Morgans analyst Scott Power says that markets would probably remain reasonably comfortable if Biden wins and Republicans hold the Senate, while a Trump victory would send it higher.

“Broadly speaking, we can say is that Trump is pro-business and lower taxes, and Biden, higher taxes,” he said.

But markets likely would step down if Democrats end up controlling both the White House and Congress, Power said, adding that the worst case is a period of protracted uncertainty where it’s not clear who has won, as happened in 2000.

There are also some implications for individual companies.

Cannabis companies could get a leg up if Democrats win

Shares in US cannabis companies surged last week after vice presidential nominee Kamala Harris said that marijuana would be decriminalised at the federal level under a Biden administration.

The US House of Representatives last week postponed a vote on Harris’ Marijuana Opportunity, Reinvestment and Expungement (MORE) Act until after the US election, but the real hurdle is expected to be passing the measure in the Senate, especially if Republicans retain control.

Meanwhile efforts at legalisation are still progressing at the state level. Vermont on Wednesday became the 11th US state to legalise recreational marijuana, and five more US states including New Jersey and Arizona have legalisation on the ballot on November 3.

Many ASX-listed cannabis companies are involved in CBD oils or pharmaceutical research, but Creso Pharma (ASX:CPH) does sell recreational cannabis in Canada through its subsidiary Mernova Medicinal.

More broadly, legalisation at the federal level in the US – generally favoured by Democrats – could be seen as a tailwind for efforts to eventually legalise recreational cannabis here in Australia. That’d be a huge boost for growers like Little Green Pharma (ASX:LGP), Cann Group (ASX:CAN) and THC Global (ASX:THC).

Defence picks for a Trump win

Generally, military spending has jumped under Trump and that trend would likely continue if he wins a second term. Shipbuilder Austal (ASX:ASB) – while not a small cap, with a value of $1.23 billion – could be one beneficiary even though the company lost out on a huge $US795 million ($1.2 billion) contract to build guided-missile frigates for the US Navy earlier this year.

EOS Optical Systems (ASX:EOS) sells lasers and remote controlled weapons systems, including to the USA. The ACT-based company has a manufacturing facility in Huntsville, Alabama.

Quickstep Holdings (ASX:QHL) also sells carbon fibre products to the defence and commercial aerospace sectors.

Democratic win could ease China trade tensions

The US-China trade war that dominated headlines and caused such market volatility last year has receded into the background given the coronavirus crisis, but presumably at some point the pandemic will be resolved and international trade will again move to the forefront of US politics.

One big beneficiary of that trade tension last year was rare earth miner Lynas Corp (ASX:LYC), which won a US tender as the States sought to secure its own supply of rare earth elements, vital for a range of technologies including magnets, batteries, lasers and modern vehicles.

Just two weeks ago Trump went even further, signing an emergency order aimed at boosting America’s rare earth supply.

It’s far from clear that Biden would reverse that order, but the Democrat would likely be more interested in repairing relations with China than rattling trade sabres.

Given Trump would likely be far more confrontational on China than Biden, junior rare earth miners like Northern Minerals (ASX:NTU), American Rare Earths (ASX:ARR), Vital Metals (ASX:VML) and RareX (ASX:REE) could said to be “Trump stocks” rather than “Biden shares”.

On the other hand, given the Democrats’ focus on the environment and climate change, suppliers to the electric vehicle industry like lithium and nickel miners would probably broadly do better under Biden than Trump.

ASX-listed nickel miners include Western Areas (ASX:WSA), Panoramic Resources (ASX:PAN), Corazon Mining (ASX:CZN) and Poseidon Nickel (ASX:POS).

Small cap ASX lithium miners include Ioneer (ASX:INR), Lithium Australia (ASX:LIT), recent ASX debuter Pan Asia Metals (ASX:PAM) and of course Piedmont Lithium (ASX:PLL), whose shares are up about fivefold since the junior announced a five-year supply agreement with Elon Musk’s Tesla from its North Carolina project.

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