Japanese Winners and Losers in U.S. Vote: Election Guide

(Bloomberg) -- Japan’s value stocks and environment-related names may benefit should Joe Biden become the next U.S. president, while drugmakers could be hurt, according to strategists.

The benchmark Topix index and the blue-chip gauge Nikkei 225 Stock Average are down 6% and 0.7%, respectively, this year. Both have remained stuck in a range since August, with global markets awaiting the outcome of the election on Nov. 3.

Investors are warming up to the idea of a Biden win after initially being concerned that a Democrat in office would result in left-leaning policies such as higher taxes, Masashi Akutsu, chief equity strategist at SMBC Nikko Securities, wrote in a report earlier this month. The list of potential positives include improved U.S. diplomacy with China, an ambitious environmental agenda and a fiscal policy that will steepen the yield curve, he wrote.

Here are the key Japanese sectors to watch in the upcoming U.S. elections, according to analysts and strategists. (Individual stock moves mentioned are year-to-date performances.)

Value Stocks

A possible “blue wave scenario”-- with Democrats winning the presidency and taking control of Congress -- could prompt investors to buy value stocks, Goldman Sachs Japan strategists including Kazunori Tatebe wrote in a note on Oct. 14. Japanese equities could outperform with a rotation into cyclical names, as “accelerated macro growth and a rise in interest rates are the typical conditions for outperformance by value stocks,” they wrote.

Environment-Related Names

Under his presidency, Biden says the U.S. would rejoin the Paris Accord and aim to achieve net-zero emissions by 2050. His sweeping green policies could create an opportunity for Japanese companies with environment-related technologies, SMBC Nikko’s Akutsu wrote in an Oct. 12 note.

Japanese industrial electronics makers and power semiconductor manufacturers could benefit from a Biden win, Akutsu wrote. “Japanese automobiles are also likely to be affected by environmentally friendly policies, and we would expect greater demand for various electric powertrain technologies, in addition to volume growth for hybrids,” the report said.

Key stocks: renewal energy producer Renova Inc. (+39% YTD), natural gas supplier Tokyo Gas Co. (-12%), Osaka Gas Co. (-6.2%), Nippon Electric Glass Co. (-17%), small precision motors maker Nidec Corp. (+42%), communication modules maker Murata Manufacturing Co. (+9.4%), electronic parts maker Taiyo Yuden Co. (+18%)

Banks, Insurance

Stronger regulation on large financial companies and a reversal of Trump’s corporate tax cuts would weigh on banks. But Biden’s fiscal spending could result in a steeper yield curve, helping lenders. The positive impact may be felt before negative implications come later, Akutsu wrote.

Banking and insurance sectors could benefit in a environment of rising long-term U.S. rates, Goldman strategists wrote.

Key stocks: Mitsubishi UFJ Financial Group Inc. (-29% YTD), Tokio Marine Holdings Inc. (-19%), Dai-ichi Life Holdings Inc. (-8.5%)

Pharmaceutical Companies

Biden’s call for ending tax benefits for drugmakers by prohibiting companies from deducting expenses related to direct-to-consumer advertising would negatively impact some Japanese pharmaceutical companies, Jefferies Japan analysts including Naoya Miura wrote in an Oct. 19 report. Japanese drug companies’ shares have been underperforming the Topix in the last two months. One reason is the upcoming election and the risks of stricter policies under a Biden administration, the analysts wrote.

Key stocks: Sumitomo Dainippon Pharma Co. (-42% YTD), Otsuka Holdings Co. (-17%), Takeda Pharmaceutical Co. (-19%), Astellas Pharma Inc. (-21%)

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