US election tips and ASX stock picks from pro investor James Whelan
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With the US election around the corner, ASX investors are starting to factor some political risk into their near-term outlook.
Just shy of three weeks out, Democrat candidate Joe Biden continues to close in as the betting favourite.
However, President Trump (freshly recovered from a bout of COVID-19) has been the underdog before.
To get an insight into how pro investors are positioning, Stockhead caught up recently with James Whelan – principal investment manager at VFS Group.
Hype and headlines will inevitably be a feature of any US election, but Whelan said cutting through the noise is key.
To illustrate, he highlighted Trump’s veiled threat last week to postpone any additional government stimulus until after the election.
“We have to track the noise and listen to the noise, but it’s what you discount that makes you good or bad at your job,” Whelan says.
“So immediately, anyone that knows Trump and his negotiating tactics, knows he’s the guy who walks out of the room and slams the door.”
“But he’s not necessarily shutting the deal off. We saw him do it multiple times with the China trade negotiations.”
For now, both sides of Congress remain locked in debate about the rollout of additional fiscal support.
But regardless, Whelan said that may play second fiddle to what markets really love – decisive election results.
“There’s a really good overarching rule in investing which is that markets hate uncertainty,” Whelan said.
“In terms of political risks – a lot of people are saying the market’s been rallying lately because there’s more chance of stimulus coming in.”
“That’s partially correct, but it’s also rallying more on an increasing likelihood that there won’t be a contested election.”
Indeed, US stocks posted strong gains on Monday — a move many analysts attributed to political certainty after Biden’s position strengthened in the polls.
“I think the market is just as friendly with a blue wave (Democrats) as it is with a red wave (Republicans),” Whelan said.
“In some ways I think the blue wave is better because it means the stimulus figure probably goes higher, and they bring in major infrastructure spending.”
“So companies with exposure to the real economy will get a massive boost from that.”
With the policy response to COVID-19 boosting liquidity for stocks, Whelan is also on the lookout for ASX small caps with a unique value proposition.
One company in the VFS portfolio is Vection Technologies (ASX:VR1), the virtual reality (VR) stock which briefly hit 10-bagger status in October after announcing a new deal with Facebook.
Whelan said he assesses different small cap thematics and when he looked at VR, Vection stood out for a key reason – it’s the only player in town.
“There’s a reason why I own Google as well and it’s not for the search function. It’s because they’re ahead in the AI/VR race,” Whelan says.
“You get these trends in the market where you say, ‘I know Facebook’s looking at this. I know Microsoft’s looking at this.’”
“There’s strong sentiment towards these kinds of companies and if you search for ASX-listed VR, Vection is the only thing that comes up.”
And Whelan also had some low-touch advice for investors with an interest in resources.
“That’s a quick strategy if you want to invest with minimal thinking. He doesn’t waste money and he knows what he’s doing.”
Looking at the 2020 year in (three-quarters) review, Whelan highlighted that it’s one that’s been dominated by the COVID-19 policy response.
And perhaps just as importantly, it wasn’t supposed to be that way. Not after central banks spent more than a decade trying to straighten out the global economy following the 2008 financial crisis.
“2020 was going to be the year when the financial crisis recovery was completed,” Whelan says.
“Rates were supposed to go up and normalise, but the pandemic got in the way.”
“So we’ve had to go and find new funding. And because the GFC is still so fresh in everyone’s mind, it’s easy to just turn the taps back on.”
As a result, policymakers have “fixed a health crisis with a GFC solution”, Whelan said.
“Whether or not that’s right or wrong, the fact is markets love the asset price increases we’ve had for the last 10 years.”
“And even more so now because of how easy that tap is getting turned on.”