Biden’s New Global Stance and Your Portfolio

Scott Chan (pictured here) is the lead analyst for Real World Investing and The Complete Investor. With a new president in the White House, we’re witnessing major foreign policy changes, especially in regard to China. Scott is our resident Sinologist and now’s an opportune time to tap his international expertise.

Scott Chan moved from China to the U.S. with his family at the age of 10. He earned undergraduate degrees from New York University followed by an MBA degree from the Zicklin School of Business at Baruch College.

A multicultural person and insightful observer of geopolitical trends, Scott reads and speaks fluent Mandarin and Cantonese Chinese. My questions are in bold.

Please pinpoint the major investment themes of the Biden era, from a global perspective.

A clear winner is renewable energies. Biden pledged during his campaign to make the biggest investment in history in innovation, the bulk of which alludes to clean energy. He also said that he wants create 10 million new clean energy jobs.

It’s a very ambitious goal. Under Obama, the U.S. gained 11.5 million jobs, but in eight years. And Obama took over at the height of the Financial Crisis and Great Recession when job numbers were depressed.

Of course, 10 million clean energy jobs don’t literally mean 10 million jobs directly involved in the production of clean energy. Rather, jobs that are peripherally related to clean energies will be counted too. It remains to be seen whether Biden can really push through sweeping renewable energy stimulus since Democrats hold the smallest majority possible in the Senate. Vice President Kamala Harris has the tie-breaking vote.

Nevertheless, even if Biden falls short of his promises for huge changes, there’s no doubt that a Biden administration will be friendlier to renewable energies compared to his predecessor.

I particularly like solar, even after the big run in solar stocks in reaction to the Biden win. Even with some potential price correction in solar stocks, the long-term outlook is bright. In the last decade the cost has fallen dramatically.

Even without a Biden victory, solar’s outlook was strong, backed by largely favorable regulatory support around the world, and now there’s the potential for major new investment in the U.S.

Related to renewable energies are commodities, in particular metals. If we will have a lot more solar panels, wind turbines, and electric vehicles (EVs) in the world, we will also need a lot more of the metals that these technologies require. Some of these metals are in the rare earth metals group, but even more common metals like silver and copper will be in high demand.

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I expect Biden to deal with China differently. Remember that before the COVID-19 outbreak, tariffs were the major cause of market volatility. I think Biden will take a tough stance but still remain diplomatic and he won’t be threatening mutually destructive actions, which should also be a positive for commodities.

Lately supply disruptions from COVID-19 have contributed to strength in commodities, but beyond the temporary boost I think the macro winds are favorable in the longer run. The continued growth of developing economies, which consume more commodities, will also add to the demand.

The Biden administration is largely abandoning Trump’s “America First” foreign policy stance to return to multi-lateralism, with an emphasis on repairing ties and cooperation with traditional allies. How will Biden’s foreign policy revamp affect global investments?

I noted the China tariff angle in my previous reply. A Biden administration should improve stability in that regard. I think Biden views China as a competitor rather than a foe. It’s possible to be firm and tough with China without being unstable. I don’t think Biden will be moving the stock market on Twitter.

Trump’s isolationist foreign policy left a vacuum abroad that China often stepped in to fill. A more cooperative stance toward other countries should help to improve international relations. From a cross-border investment perspective, I don’t think the Biden victory changes much. For example, despite general dislike of Trump in Europe, investments from Europe continued to flow in at a strong rate.

Basically, I don’t expect huge changes. But I would again use “more stability” to describe the change in the White House.

Former president Trump had started a trade war, with bellicose rhetoric and a slew of trade sanctions. One of the factors for the rise in international stocks lately has been Biden’s vow to abandon tariffs and other punitive measures and return to negotiations with China. What are the consequences for investors?

Although the U.S. government did collect more money from tariffs, studies show that American companies and American consumers like you and I actually paid the bill because the imports merely became more expensive.

If nothing else, Biden’s team should be more diplomatic, less volatile, and they will try to work something out.

I think Biden will be firm against China without taking actions that could hurt us badly in order to hurt them. For example, Biden can keep the ban against Huawei but ease up on the tariff tactic.

Another cornerstone of Biden’s new world view is a return of the United States to various multi-party trade agreements, notably the Paris Climate Accords. Unlike Trump, Biden will focus on battling climate change and reducing carbon emissions. Which specific opportunities does this policy shift raise for investors?

Continuing on what I was saying earlier, renewables appear to enjoy a long growth runway ahead. I mentioned solar in particular. Utility-scaled solar will play a bigger and bigger role in supplying our power needs. I am talking about massive solar farms with many thousands of solar panels installed. This chart shows how solar capacity has grown in the U.S. in past years. Note that this chart was made in 2020 and does not account for the potential Biden boost.

Solar photovoltaic (PV) deployment is projected to rise dramatically. EVs, too, look like major winners from the zero-carbon perspective, but stocks like Tesla (NSDQ: TSLA) have already been bid up to the moon.

Other areas that may not be as sexy as Tesla but look well-positioned for growth are companies that provide solutions in regards to energy conservation and energy efficiency. Electric buses have been relatively slow to take hold here in the U.S., but under Biden and the Democratic majority in Congress, we will likely see them get a nice boost.

What about aerospace/defense? U.S. military spending tends to go up, regardless of the political party in power, but do you think Biden will be good or bad news for defense contractors?

Democrats have a reputation for being less friendly to defense and Biden will face pressure from the progressive branch of his party to reduce the military budget. But remember, Democrats aren’t all the same. There’s still a moderate spectrum within the Democratic party.

The Democratic majority in the Senate is razor thin. Huge defense cuts likely won’t happen. Besides, cutting the defense budget has a trickle-down impact on the defense companies’ suppliers, and those companies’ suppliers, and so forth. It would mean job loss.

Unless God forbid we have another war, I don’t think we are going to see a big jump in defense spending in the next few years, but I would be very surprised if we get major cuts. I think any reduction in spending will affect mostly the big-ticket items. Vital areas like cybersecurity should be safe.

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