Pfizer chief executive Albert Bourla rings the trading bell at the New York Stock Exchange. Image: Getty
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Joe Biden’s ascendency to the US presidency has opened up a range of new investment themes for Australian investors looking to capitalise on potential gains in US stocks while returns on alternative assets stay low.
“With interest rates set to remain at rock bottom until at least 2023, the focus on equities is higher than it has been for years,” said Josh Gilbert, market analyst at trading platform eToro.
“Fiscal policy is very high on Biden’s agenda, which in the short term is anticipated to provide a boost to equities across the market,” said Gilbert.
Democratic party representatives in the US Congress are poised to vote on a package of stimulus measures for the US economy that add up to around $US1.9 trillion ($2.5 trillion).
Infrastructure spending on items such as roads, schools and hospitals is another focal point for Biden, as underlined by his campaign slogan of ‘Build Back Better’.
US construction equipment maker Caterpillar is expected to gain from infrastructure spending under President Biden, and has paid a healthy 2 per cent dividend recently.
“Although Caterpillar has struggled with increasing its revenues in 2020, it is currently sitting on a comfortable $US9.3bn in cash, keeping its balance sheet strong,” Gilbert said.
The 46th president has signalled his intention to steer his administration in a different direction to his predecessor’s by signing executive orders on climate change and EVs and by hinting at a new approach to trade with China.
“The Biden administration has already stamped its authority with 17 executive orders, nine of which were reversals of policies introduced by Donald Trump,” said eToro’s Gilbert.
“One of these policies was rejoining the Paris Climate Agreement,” the market analyst said.
President Biden was elected with a promise to reduce US net emissions of greenhouse gases to zero by no later than 2050 which puts the focus on fossil fuel energy sources.
“With Biden re-entering the Paris Agreement, I expect we will see an uptick in net zero 2050 announcements as US companies feel pressure to set a similar target,” said Wood Mackenzie Asia Pacific Vice Chair, Gavin Thompson..
“As a result, competition will increase for clean energy sector resources, including battery metals and renewables supply chains,” said Thompson.
There are more than 100 ASX resources companies that produce metals for the EV and electric battery industries.
They include Australian listed firms such as EcoGraf (ASX:EGR), Lake Resources (ASX:LKE) and Magnis Energy Technologies (ASX:MNS).
Investment in US clean energy stocks has been rising since the COVID-19 pandemic struck last year, and Biden’s new approach to energy policy could accelerate this trend.
“Analysts believe that the solar industry will grow from its current valuation of $US53bn to $US223bn by 2026, as a repercussion of these changes,” said Gilbert.
He gave as an example of the impact of investment trends in solar energy the performance of the Invesco Solar exchange-traded fund which has gone up by 385 per cent since March.
However, Wood Mackenzie’s Thompson stressed that much clean energy technology is dominated by China, leaving limited scope for US companies to profit from the sector.
“Take solar module production as an example. Around two-thirds of global output sit within China, and Chinese manufacturers also own significant capacity in other markets, taking China’s control even higher,” said Thompson.
Many of President Biden’s energy policies stem from his Plan for a Clean Energy Revolution which featured heavily in his election campaign last year.
Biden campaigned on implementing nine changes to US energy policy, many within his first 100 days of office.
This included promoting zero-carbon emissions standards for vehicles, banning new oil and gas projects on US government land, and investing $US400bn in clean sources of energy.
“These clean energy plans will also benefit the EV sector, with Tesla at the forefront,” said eToro’s Gilbert.
President Biden has pledged to increase tax credits for EVs that is likely to lead to increased sales for companies such as New York-listed Nio which services the market for China.
“Tesla saw enormous delivery numbers in China last year, and with better relations impending between the US and China under Biden, Tesla is expected to flourish in the EV capital of the world,” said the eToro market analyst.
The main sources of carbon dioxide emissions in the US were from the combustion of oil (2.37 billion tonnes), gas (1.69 billion tonnes) and coal (1.08 billion tonnes).
As a result, coal now accounts for 21% of US energy-related emissions compared with 33% from gas and 46% from petroleum.
“The Biden administration is likely to strengthen regulations regarding emissions management from the oil and gas sector,” said Wood Mackenzie’s head of carbon research Amy Bowe.
Government regulation of the energy sector may increase under a Biden administration, with moves to entrench financial disclosures around energy-related emissions.
Nearly 1,500 companies including mining firms have signed up to the Task Force for Climate-Related Financial Disclosures (TCFD) guidelines since their released in 2017.
While still voluntary in most jurisdictions, there is a growing movement to mandate TCFD disclosure for listed companies, said energy consultancy firm, Wood Mackenzie.
Biden’s pledge to normalise trade relations with China could spell good news for US companies that sell a lot of product to the Asian country such as Apple.
“With these relations set to strengthen under Biden, it is predicted that Apple will continue to boom in China,” said Gilbert.
China accounted for around 45 per cent of global demand for Apple’s iPhone 12 product, and Apple shares are up 10 per cent in the year to date.
Finally, large pharmaceutical companies, particularly those involved in the vaccination program for COVID-19 also stand to benefit under President Biden.
“With Biden planning to vaccinate more than 100 million Americans in his first 100 days in office, pharmaceutical company Moderna is set to benefit considerably,” said the eToro analyst.
The pharma company is tasked with producing booster shots of the vaccine for COVID-19 and since November, Moderna’s share price has risen by 119 per cent.
Another pharma company involved in the COVID-19 vaccine rollout is New York-listed Pfizer.
US stock markets have had a good run since Joe Biden’s election in November, with the S&P 500 rising 14 per cent, and the Nasdaq tech index going up 22 per cent to record highs.
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