As the world focuses on the upcoming US elections, we are reminded that a Biden win may not be good news for some S&P/ASX 200 Index (Index:^AXJO) stocks.
This is despite the fact that Joe Biden is the popular choice for president compared to Donald Trump. A Biden presidency is more likely to increase stimulus to the US economy and that can only be good news for the rest of the world.
But the Democrat contender is also seeking to reverse Trump's company tax cuts. This will see the tax rate increase to 28% from 21%, according to Macquarie Group Ltd (ASX: MQG).
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Taxing issues for some ASX stocks
"While there are many uncertainties, IF the US corporate tax were to rise to 28% in say FY23, we estimate this would reduce ASX Industrials EPS [earnings per share] [by] 1.3%," said the broker.
This may not sound like much, but some ASX stocks will be more impacted by the increase in company taxes.
Macquarie looked at the sales and earnings mix of ASX stocks under its coverage and picked those that could see an EPS reduction of 5% or more in FY23.
ASX stocks most affected by a Biden presidency
This includes the Appen Ltd (ASX: APX) share price, the Janus Henderson Group CDI (ASX: JHG) share price and the Incitec Pivot Ltd (ASX: IPL) share price.
Other stocks on the list are the Aristocrat Leisure Limited (ASX: ALL) share price, the James Hardie Industries plc (ASX: JHX) share price, Sims Ltd (ASX: SGM) share price, Breville Group Ltd (ASX: BRG) share price, Cochlear Limited (ASX: COH) share price, News Corporation Class B Voting CDI (ASX: NWS) share price and Computershare Limited (ASX: CPU) share price.
But you shouldn't be basing your decision to sell these stocks solely on the tax issue. There are other factors to consider.
A Biden win can create tailwinds too
For one, the potential increase in fiscal stimulus could top US$2 trillion or more. This could give some of these ASX stocks a big shot in the arm that will offset the tax risk.
Macquarie pointed out that cyclicals will benefit much more from stimulus than defensive stocks. This means building materials supplier James Hardie and kitchen appliances group Breville may weather the earnings headwinds better than others.
Wages and China impact
Other potential positives from a Biden win include higher government spending and higher infrastructure investment.
Wages for the low-income earners, a weaker US dollar and easing tensions with China are other likely outcomes under Biden.
But how easily Biden can pass legislation depends on whether the Democrats control both houses. On that note, Macquarie is telling investors to prepare for a "Blue Wave".
The odds of a Biden victory with Democrats also controlling the House and Senate is 76%, a more than 10 percentage point increase over the last month.
