Possible US Election Impacts on the Technology and Healthcare Sectors


Possible US Election Impacts on the Technology and Healthcare Sectors

October 5, 2020

Host: Hello and welcome to Talking Markets: exclusive and unique insights from Franklin Templeton.

Ahead on this episode: how the upcoming US elections could affect the technology and healthcare sectors. Plus, what election results could mean for future infrastructure spending, and bringing manufacturing back to the US from China.

Stephen Dover, Head of Equities at Franklin Templeton, speaks with Grant Bowers, Portfolio Manager with Franklin Equity Group.

Transcript

Stephen Dover:  Grant…there's a lot of news on this upcoming election and of course we don't know how it's going to turn out. How do you plan for this upcoming election?

Grant Bowers:  Well, I think investors should really remember that while this is a very important election cycle and will have significant implications on our society and our economy, ultimately markets and the economy or economic growth are driven by fundamentals. A big part of that is going to be corporate profits. Think about investing in high-quality businesses that can endure economic volatility, good balance sheets, strong cash flow, and ultimately businesses and companies we believe are exposed to many of these really truly sort of multi-decade long secular trends and themes. Because to us, when we are active investors and navigating the market, we're trying to think about our portfolios truly in the sense of out three, five or 10 years and not necessarily about the next one or two quarters. And we think that's the recipe for success. And so we really do encourage investors to think long term and use any of the volatility we might get around the election as an opportunity to really take advantage of good prices on great companies that were going to be around for a long time.

Stephen Dover:  What is your view on how the upcoming election might affect the healthcare sector?

Grant Bowers:  Well, we continue to be very positive on the healthcare sector broadly. We don't see any really meaningful changes to that positive outlook. Biden has come out and said, you know, he wants to expand coverage for people. He wants to increase consumers' ability to access healthcare inexpensively. He has endorsed a private option, but as well as some public option, many times the market will be fearful of this idea of a public option, the idea of Medicare for all. And the idea that we could see a true sort of public takeover of healthcare. We see that as a very remote possibility out there, but as something the market is going to continue to be very concerned about in the future. You know, I would say another big topic in healthcare that we're always paying attention to is drug price regulation. And it will be probably the number one or number two, topic within healthcare as we come into the election and even post the election. It could have tremendous impact on pharmaceutical as well as biotech sectors. Right now, we don't see anything that is that alarming, but as something we're really going to be monitoring closely because the impact could be quite severe, if we saw it a true change in the way drugs are priced and sold here in the United States.

Stephen Dover:  One of the biggest stories this year for equity investors has been the dominance and performance of the FAANG [Facebook, Amazon, Apple, Netflix and Alphabet] stocks—those eight or 10 technology stocks that have dominated the performance of the market. What impact do you think the elections might have on technology stocks?

Grant Bowers:  Yes. I mean, tech has really been front and center, not just in the market and driving the market overall, but it has really been front and center on a lot of the political and policy issues in the market. So, we've seen things like the tensions with China and the trade issues, and this idea of protecting intellectual property. The idea of holding on to technology advantages that we may have here in the US in protecting US companies. Our view is that, clearly if Trump is reelected, that these policies and posture will continue. 

But our belief is also that if Biden is elected, that he will not let up and he will essentially push forward as this has become a very widely accepted bipartisan issue to keep pressure on competition within tech, globally. And we think that that many of the Chinese trade tensions are really here to stay and that this is part of, sort of the new normal within markets. And we shouldn't look at them as one-off events. It's really going to be the status quo going forward. 

You know, the other topic you mentioned, which is I think, front and center, as well is the FAANG stocks. The potential for regulation of these companies probably increases under a full Democratic sweep. We believe that while there may be changes to their business models around the margins and possibly some concessions to appease some of this regulatory pressure, that the fundamental backdrop of these businesses is still incredibly strong and the businesses are very strategically important to the US as technology is really sort of how we project power now globally. And so, the big FAANG stocks are a big part of that power structure and too much regulation could actually really change that. And I think that's not in the US best interest longer term.

Stephen Dover: Two issues that both sides of the aisle agree on is being tough on China and trying to bring manufacturing back home to United States. What are the implications of that for investors?

Grant Bowers:  Our sense is that the COVID-19 pandemic has really exposed a lot of weaknesses in supply chains and global supply chains, particularly within healthcare, but also within other sectors, throughout industrials and manufacturing. And as we look forward and think about how CapEx [capital expenditure] is going to be spent and how supply chains are going to be built and structured over the next three, five, 10 years, we are big believers that we will continue to see reshoring here back into the US and a bolstering of the US manufacturing capacity across many different industries. So, while I think that this is something that is purely a business and an economic decision that many companies are making, there is definitely going to be a political side of it as the policies put in place really look to bring back jobs and shore up the middle class here in the US. And a big part of that is going to be this idea of reshoring businesses and reshoring manufacturing back to the US and I think it's going to continue. In our discussions with many companies, this is probably not something that really starts to build up steam until we're really through the COVID-19 pandemic. So, we're probably looking at a 2021 or 2022 type of story, but probably has legs and lasts for three, five, or even 10 years as we migrate down that path.

Stephen Dover:  Another area that both Democrats and Republicans seem to agree on is increases in infrastructure spending, although the Democrats seem to push more of the Green Plan and Republicans tend to push more traditional infrastructure spending on roads. What do you think about infrastructure spending and how that might affect investing?

Grant Bowers:  Yeah, I think no matter which party is in charge of the next four years, infrastructure spending is definitely something that's going to be front and center. It's been a bit surprising to us. I think that we haven't been able to push through a major infrastructure plan over these last four years. If you would've asked me back in 2016, I would've said that was one of the number one priorities, and we would, should expect to see it. 

As we move forward, I still have a lot of confidence that we're going to see an infrastructure plan and while different parties may direct it differently, I think both sides will include a lot of roads and bridges, they will include airports and the pieces that makes this country move, clean energy and alternative energy will be a big part of any Democratic side. But one of the points that I think is really important to think about—an area that often doesn't get talked about—is this idea that, what is infrastructure and where should new infrastructure dollars be spent in the US?

 Well, our sense and our research says much of that is going to be spent on technology. Technology infrastructure is really in many ways, replacing sort of the old line traditional, what we think of as infrastructure—so access to broadband, 5G [fifth generation] wireless infrastructure,  data infrastructure is all going to be a big part of any infrastructure plan. So, it's actually kind of interesting, and many investors don't think about this way, but we really do think that any big infrastructure plan is going to have a lot of capital that flows to technology infrastructure and projects.

Stephen Dover:  Grant, I think that's an excellent point. A lot of people think of infrastructure spending in terms of roads and bridges, but of course it's going to affect a lot of different industries, including technology and perhaps even affect the movement of people, if manufacturing goes back to the Midwest, maybe there'll be a boom in the Midwestern United States. 

Grant, thank you so much for your insights about the upcoming elections and how investors should think about them.

Grant Bowers:  Stephen, thank you for having me here today. It's been a great conversation.

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