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StockBeat: European Stocks Likely to Do Better Under Biden - Up to a Point

Published 03/11/2020, 10:56
Updated 03/11/2020, 10:58
©  Reuters

© Reuters

By Geoffrey Smith 

Investing.com -- Consensus wisdom has it that the clarity of the election result in the U.S. tonight is just as important as the identity of the winner. But for European stock markets, which struggle to decouple from U.S. ones at the best of times, that rule probably only goes so far.

For sure, neither market is going to enjoy the sight of lawyers and parties haggling over which votes should be counted and which not in the event of a tight result. Nor can any good come of attempts to delegitimize the election in general by the Trump campaign ahead of time – or, indeed, of the violent protests that boarded-up storefronts seem to be anticipating in the case of Trump’s re-election.

One can make a case for higher risk premiums (and thus lower valuations) for U.S. equities whatever the outcome of the poll, given that the erosion of U.S. democracy, of its impartial institutions and its legal predictability, seems set to continue under the debilitating effects of social media in any case.

The U.S.’s governability has been taken for granted for decades. There is no immutable law that says it should be in future, especially under a president and a Supreme Court at odds with the majority of the population. The best hope for European equities is that any such volatility subsides quickly.

The idea that a Biden victory will be better for European stocks seems logical enough: Europe has had nothing but grief from Trump’s trade wars not just against itself, but against China, a major buyer of European capital goods and luxury items.

A Democratic establishment is more likely to pursue U.S. interests through a softer line, dropping threats of tariffs and possibly unblocking the World Trade Organization’s executive organs. The EU, like many others, needs the WTO to work for the smooth functioning of its trade with non-U.S. entities too (not least, as of January, the U.K.)  French luxury groups such as LVMH (PA:LVMH) and Remy Cointreau (PA:RCOP) should benefit, as should Airbus (PA:AIR) and the German automotive sector.

Likewise, the shift in U.S. energy policy under a Democratic administration toward renewables and re-entering the Paris Climate Accord could greatly expand market opportunities for utilities such as Orsted (OTC:DOGEF) and Iberdrola (OTC:IBDRY) (the latter of which just made a clear statement of intent with its acquisition of New Mexico-based PNM Resources (NYSE:PNM)), as well as turbine makers Vestas (OTC:VWDRY) and Siemens Gamesa (MC:SGREN).

And, as Berenberg Bank chief economist Holger Schmieding pointed out in a note to clients on Tuesday, a Democratic administration and Congress is more likely to steer the U.K. away from risking a chaotic end to the post-Brexit transition agreement, especially as regards keeping the Irish border open.

However, the issues that have plagued U.S.-EU commercial relations will not go away overnight. European countries remain determined to replace the tax revenues they have lost through the destruction of so many businesses by Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL) and other Big Tech names, to whom many lawmakers in the next Congress will remain – directly or indirectly – personally indebted.  A Democratic establishment may also push Europe to take a harder line toward Russia, notably with regard to the still-incomplete Nord Stream 2 pipeline.  And with the U.S.-China relations seemingly permanently reset, the EU will have to make hard choices about where its sympathies and long-term interests lie – the kind of choices that the EU is not very good at. Expect that to be reflected in due course too, even under a mellifluous and avuncular President Biden.

Latest comments

The pollsters are wrong, Trump will win big. The US public will want him to tackle China over Covid
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