The almost certain elevation of Joe Biden to the presidency of the US on January 20, 2021, promises to throw a new element of uncertainty into an already unpredictable year. But for astute investors, it could also offer opportune possibilities for the long-term.
One of the most immediate shifts will be one of tone with China. Donald Trump offered a mixture of pain and gain for the world’s second-largest economy. His tariffs on Chinese exports to the US hurt, as did some measures to sanction individual Chinese companies such as technology firm Huawei.
But Trump’s transactional approach focused heavily on trade; he had little to say in other areas. As a result, China's president, Xi Jinping, saw little backlash over the country's confinement of around 1 million of its Uyghur Muslim population into so-called 're-education camps’. And while Trump's administration revoked Hong Kong's special trading status and placed a few individual sanctions over the imposition of a draconian national security law, he offered no direct criticism of Xi. Plus China has flexed its muscles more in the Asian region – including having its armed forces stage military exercises close to Taiwan.
Biden will be different. A man who was the ranking Democrat on the Senate Foreign Relations Committee for 12 years, he is very likely to reassert US support for human rights and democratic nations, including support of Hong Kong and Taiwan.
For now, Beijing seems to be taking advantage of the transition period (and Trump's indifference) to cement its control of Hong Kong. On Wednesday (November 11) it unilaterally imposed a new law that allowed "unpatriotic" Hong Kong legislators to be disqualified and directed the city's government to dismiss four pro-democracy legislative council members immediately. That led the entire opposition caucus to stand down in protest. One Country, Two Systems appears dead in all but name.
While Biden cannot roll back the existing subordination of Hong Kong's politics and judicial system, it is possible that he could limit its further erosion through the threat and implementation of sanctions. Similarly, he could support Taiwan from overt threats. The new president will need to balance such steps, however, against the entwined trade relationship of the world’s two largest economies, along with the need to defend and support US jobs.
Over the longer term, it's possible the US and China end up in a tense and formal relationship, which nevertheless eases restrictions in areas that benefit both nations. These could include agricultural products, rare earth minerals, lower-end gadgets and the financial services sector. Asset management could especially benefit as Beijing lets more foreign players participate in China’s ballooning local capital markets. Healthcare could also see more entrants to meet the needs of China’s ageing populace.
China’s tech companies, however, may well need to look to their domestic and emerging market prospects for the immediate future; the US and Europe are likely to coalesce around technologies of nations they trust; Chinese 5G need not apply.
ASIA AND US
In addition, Biden will probably want to counterbalance China’s influence by reinvigorating diplomatic and commercial relationships with Japan, Korea, Taiwan, Australia and potentially Vietnam. This could give companies from these nations easier access to US products and less suspicion over their motives.
Businesses and asset owners from Korea, Japan and Taiwan may also enjoy particular access to the US if they are willing to invest into or otherwise support renewable industry sectors, which is one of Biden’s declared priorities. Vietnam, meanwhile, will likely continue to benefit from being an alternative manufacturing destination to China, if it builds products the US no longer sees value in making domestically.
Another factor worth considering is the opportunities inside the US that a Biden administration could offer to Asian institutional investors.
In stark contrast to Trump’s chaotic administration, a Biden presidency appears poised to combat the Covid-19 outbreak with all available tools. It will have its hands full for many months – even if US pharmaceutical company Pfizer can distribute the vaccine it says it has developed. But the seriousness with which the US is set to take the disease should raise global market confidence.
It will also benefit manufacturers of medical supplies and healthcare. And Biden’s professed desire to expand health insurance is likely to be another fillip in this space.
As noted, renewable energy and associated industries are likely to benefit too. So is infrastructure more generally. One of the few things on which Democrats and Republicans agree is a need to restore some of the US’s outdated infrastructure, and Biden is eager to get people back to work.
It is possible that such ambitions could lead to infrastructure investment opportunities, as the federal and municipal governments seek to fund new (or upgraded) roads, extended rail systems and enhanced electricity grids. New rounds of infrastructure bonds (both tax-exempt and not) are one likely outcome.
CHALLENGES TO COME
That is not to say all will be well under a Biden presidency. North Korea remains a volatile hotspot, Biden’s approach to Iran is uncertain, and Saudi Arabia’s close relations with Trump will yield to more friction with the new government. Similarly, relations with a Brexit-obsessed UK are likely to be cool.
Then there is the ongoing impact of Covid-19, which will continue to leave government debts surging and slow global economy. 2021 promises to be a challenging year.
Amid those conditions, Biden will have to navigate a polarised US Congress. The Republican Party has been very slow – almost insultingly so – to accept his presidential election victory, in what looks like an attempt to placate the antipathy of its Trump-obsessed voting bloc. With the Republicans set to retain control over the Senate too (there are two run-offs to be conducted in Georgia in early January) obstructionist senators are likely to seek to tie Biden's hands over new legislation.
Biden is also not the most inspiring politician and, unless he stamps his authority quickly, he may see the Democratic Party lose its focus, or fall into internecine rows between the progressive and centrist wings. Such outright battles could quickly stymie his mandate to govern.
Yet for all that, Biden is an institutionalist – and a dealmaker. In times of unparalleled challenges, these are positive qualities for a new president to have. For investors looking to the horizon, Biden's unifying, centrist instincts promise a return to normality sooner rather than later.