To Avoid Volatility... Respond with 'Common Beneficiaries' Like Healthcare, Defense, and Infrastructure [2024 US Presidential Election]

Next Week's US Election Results Expected
Volatility to Increase Until Next Month's Election
Trump Risk Addressed Through Value Upgrading

Kamala Harris, the Vice President of the United States, or former President Donald Trump.

As the two candidates show a close race in the U.S. presidential election, there is a forecast that short-term volatility in the domestic stock market may increase as the election approaches. Since it is difficult to predict who will gain the upper hand, a Trump-Harris trade pattern may frequently appear within the stock market. Given the uncertainty about which candidate will win, the securities industry advises focusing on sectors that receive bipartisan support, such as healthcare, defense, and infrastructure (power), rather than sectors related to a specific candidate.

Harris’s Victory Favorable for Korea... Trump’s Victory Positive for U.S. Stock Market

In the securities industry, there is an analysis that different investment strategies should be adopted before and after the election. Jin-hyuk Kang, a researcher at Shinhan Investment Corp., explained, "Looking at the domestic sectoral performance before and after past U.S. presidential elections, the overall returns one month after the election were better compared to one month before the election." He added, "Before the election, sectors with lower volatility than the index such as communication services, retail, insurance, utilities, and healthcare showed excellent performance. On the other hand, after the election, cyclical sectors like energy, steel, non-ferrous metals, chemicals, semiconductors, and displays had higher returns."

Market volatility is also expected to increase ahead of the U.S. presidential election scheduled for next week (November 5). Seong-hoon Lee, a researcher at Kiwoom Securities, said, "The recent rise in support for candidate Trump is also a factor that could gradually increase market volatility," adding, "Within the stock market, a Trump-Harris trade pattern may frequently appear."

Chan-gyu Baek, a researcher at NH Investment & Securities, advised, "After the president is confirmed, it would be reasonable to invest in promising sectors based on the president’s policies during the honeymoon period until the first half of next year, or to increase U.S. exposure while reducing Korean exposure."

Although the process of forming a cabinet and implementing policies after inauguration is expected to significantly impact the financial market, some opinions suggest that the influence on directional trends until the first half of next year will be limited.

Nam-jung Moon, a researcher at Daishin Securities, said, "Price fluctuations due to the election results should be taken into account, but short-term volatility is expected to increase if Trump wins," adding, "If Harris wins, the Biden administration’s policies will continue, reducing the market uncertainty that had expanded during the election process."

The impact on the domestic stock market is expected to differ depending on the winning candidate. Considering policy directions from the perspective of the Korean stock market, Moon said Harris’s victory could be favorable for Korea. He explained, "Harris’s stance on China is less hawkish than Trump’s, and she is more friendly in relations with trading partners," adding, "Since she is expected to continue Biden’s Inflation Reduction Act (IRA) and the CHIPS Act, it is relatively positive for the domestic stock market and companies."

On the other hand, from the perspective of U.S. companies and the U.S. stock market, Trump’s victory is expected to create a slightly more favorable environment. Moon said, "Because of corporate tax cuts, lowering corporate tax rates, and a tough stance on China, Trump could strengthen America First policies," but he also pointed out, "However, since Trump would overturn all Biden policies, policy uncertainty is expected to increase."

Beneficiary Stocks: Harris for Green Energy, Trump for Deregulation

The sectors expected to benefit from each candidate’s policies can be broadly summarized as Harris’s green energy value chain and Trump’s deregulation. Representative beneficiary stocks related to Harris include secondary batteries, renewable energy, and electric vehicles. For Trump, beneficiary stocks include banks and industrial goods. In this regard, Samsung Securities classified them into the 'Harris Basket' and the 'Trump Basket.' The Harris Basket includes △green energy value chain (electrification, clean energy, energy efficiency). The Trump Basket includes △fossil energy value chain (energy, internal combustion vehicles, etc.), △deregulation (finance, healthcare, telecommunications), and △livelihood (industrial goods).

Researcher Jin-hyuk Kang said about sectors expected to benefit from each candidate, "From a short-term perspective, the longer the close race between candidates continues, the more volatility can be used as an opportunity," adding, "For Trump, banks, finance, and virtual asset-related stocks can be considered, and for Harris, secondary batteries and renewable energy."

Daishin Securities predicted that if Trump wins, positive effects are expected in retail, automotive, defense & aerospace, energy, infrastructure, healthcare, pharmaceuticals, advanced IT industries, and finance sectors, but growth in electric vehicles, batteries, and renewable energy may be constrained. Conversely, if Harris wins, positive effects are expected in retail, infrastructure, advanced IT, electric vehicles, batteries, and renewable energy sectors, but growth in automotive, energy, defense & aerospace, and finance sectors may slow down.

The securities industry advises paying attention to sectors that receive bipartisan support, as short-term fluctuations in beneficiary sectors backed by each candidate are expected depending on the election results. Jae-ho Choi, a researcher at Hana Securities, advised, "Although there is a slight possibility of policy changes as the campaign and debates progress and the election date approaches, the answer to investment lies in beneficiary stocks in overlapping sectors that reflect the common traits of each candidate." He added, "Defense sectors benefiting from increased investment for military strengthening and contract development and manufacturing (CDMO) sectors benefiting from the Biosecurity Act aimed at strengthening China containment are expected to benefit," and "From a mid- to long-term perspective, medical AI that can shorten treatment time and reduce treatment costs, and infrastructure sectors with production bases in the U.S. and high exposure to U.S. exports are recommended."

Researcher Nam-jung Moon pointed out power infrastructure and healthcare as sectors supported by both parties. He said, "Infrastructure expansion due to increased power demand is a challenge in the AI era and a goal pursued by both the Democratic and Republican parties," adding, "Regarding healthcare, Trump is market-friendly, and Harris focuses on public health and biomedical research, so interest in healthcare will increase in common, but Harris may be more favorable from the perspective of domestic companies."

Researcher Chan-gyu Baek presented △semiconductors △information technology (IT) △healthcare △nuclear power generation as sectors that would benefit regardless of which candidate wins. He added, "Recently, Samsung Electronics has experienced a slight winter, but it is not a semiconductor winter, so the overall trend will not be greatly shaken."

Trump Trade Appearing in Global Financial Markets... Need to Respond with Value-Up

As analyses suggest a higher possibility of Trump’s victory recently, there is advice to respond to the situation by focusing on value-up program leading stocks. The 'Trump Trade' (investment in assets benefiting from Trump) is sweeping the global financial markets, deepening Republican risks such as a sharp rise in the won-dollar exchange rate.

Ji-yeon Woo, a researcher at DS Investment & Securities, said, "If Trump’s tariff policies are realized, volatility in the stock prices of major export countries is inevitable. To defend against risks, it is possible to respond by focusing on value-up beneficiary stocks," adding, "During the 2018-2019 U.S.-China trade war, stocks with strong fundamentals in value, dividends, and buybacks?key indicators of the current value-up program?performed relatively well."

Woo also noted, "Republican economic policies have fundamentally contributed positively to the earnings improvement of domestic companies with strong cyclical characteristics. In the past, the KOSPI preferred Republican governments in the U.S.," and analyzed, "Therefore, with expectations for the revival of the U.S. traditional energy industry if Trump wins, domestic energy, chemical, refining, and machinery equipment sectors are promising."

Additionally, since the domestic stock market is sensitive to the global economy and trade, close monitoring of export industry trends is necessary. Daeseok Kang, a researcher at Yuanta Securities, said, "The most important factor in the domestic stock market is exports," adding, "One of the reasons for the recent weakness in the Korean market is the weakening export momentum due to the global economic slowdown, so market attention will shift to whether trends will change depending on the U.S. presidential election results." He continued, "There is a possibility of a positive spillover effect in IT hardware and secondary batteries, which have large U.S. imports and trade deficits. The machinery sector, including heavy equipment and other equipment and facilities for inducing production in the U.S., is also positive," and predicted, "Korea’s bio industry is at a crossroads to become a 'boss-like subcontractor' like Taiwan’s TSMC, so long-term interest in the healthcare sector will continue."

This content was produced with the assistance of AI translation services.