With Joe Biden due to take office this week, many investors are wondering what this could mean for ASX shares. Ahead of his inauguration Biden has revealed a $1.9 trillion coronavirus relief plan aimed at combating the pandemic and the economic crisis it has triggered.
In the short term, this additional fiscal stimulus should help bolster the battered US economy, but it has also impacted global share markets. Prices of commodities used in infrastructure projects have rallied since Biden announced the package, while technology stocks have struggled.
A splurge of issuance in the government bond market is expected, alongside higher inflation. This could prompt the Federal Reserve to increase interest rates earlier than expected.
In the US, there has been a rotation away from the tech sector into economically sensitive sectors such as small caps and value stocks. The rollout of the coronavirus vaccine combined with additional government stimulus is expected to lift sectors which were hit hardest by the pandemic.
Longer term, the Biden administration is expected to increase spending on infrastructure and clean energy. So which ASX shares are set to benefit?
Clean energy
Biden is proposing a $1.7 trillion federal investment in green technologies and wants the US to reach zero net emissions by 2050.
Biden is seeking to accelerate the deployment of clean technology throughout the economy, as well as rallying the world to take urgent and additional climate action. The Biden administration’s policy focus on clean energy could provide tailwinds to companies in the sector and accelerate the structural shift towards sustainability.
This could be good news for ASX shares such as Lynas Rare Earths Ltd (ASX: LYC). The rare earth miner produces minerals crucial to the manufacture of high-tech products. Increased demand for electric vehicles, green technologies, robotics, and consumer technologies should boost demand for rare earths.
In April 2020, Lynas was awarded a contract for the development of a heavy rare earth separation facility in the US. There are currently no such facilities outside China, and the US is looking to rebuild its rare earth processing industry to escape dependence on China.
In 2020, Trump signed an executive order to boost domestic production of rare earth metals, which are crucial in defence technologies. Lynas is helping the US secure a reliable supply. With Biden in power, however, the renewable-energy applications of rare earths could become even more important.
Lithium miners are also likely to benefit from Biden’s green credentials. Lithium is a key ingredient in the batteries used to charge electric vehicles.
The demand for these batteries is expected to grow under Biden and Lithium miners could expect to see the benefits of this. It is expected that Biden’s green initiatives will kickstart lithium and battery projects in the US.
ASX miners in the lithium area include Vulcan Energy Resources Ltd (ASX: VUL) and Piedmont Lithium Ltd (ASX: PLL).
Piedmont Lithium signed an agreement with Tesla last September to supply the automaker with spodumene concentrate, while Vulcan has developed a world first zero-carbon lithium process.
Nickel is also a vital ingredient in lithium-ion batteries that power electric vehicles. This means nickel producers such as Western Areas Ltd (ASX: WSA) and Panoramic Resources Ltd (ASX: PAN) could also benefit under a Biden administration.
Western Areas has a portfolio of low-cost, high-grade nickel mines with an active exploration program. Panoramic Resources operates nickel mines in Western Australia and is engaged in exploration in Australia, the US, and Canada.
Green shoots for cannabis shares
During the campaign, Biden stated his administration will pursue cannabis decriminalisation and that he supports medical cannabis legalisation.
Democratic control of the Senate also means federal cannabis reform proposals are more likely to make it to the floor of the Senate. Federal legislation in the US could push forward efforts to legalise recreational cannabis in Australia. This could be a boom for ASX cannabis shares such as Althea Group Holdings Ltd (ASX: AGH), Little Green Pharma Ltd (ASX: LGP), and Cann Group Ltd (ASX: CAN).
Althea is already taking advantage of Canada’s cannabis 2.0 legislation with its Peak Processing facility. The company already has a growing client base of Australian medical marijuana customers. Little Green Pharma has been manufacturing Australian medical grade cannabis products since 2018 and provides a range of THC and CBD oils. Cann Group has established R&D and cultivation facilities in Australia and is looking to establish a leading position in plant genetics, breeding, cultivation, and production.
Ethical investing on the rise
Socially responsible investing is likely to gain momentum under Biden. Although most companies are aware that being environmentally friendly and socially responsible is good for both customers and shareholders, the sector will likely receive a boost under a Biden administration.
This is because his cabinet and regulator choices look to be ESG-friendly. Further, his administration has flagged an intention to require public companies to disclose more climate-change related data, which will allow ethical investors to make more informed decisions. There are a number of ETFs listed on the ASX that give Australian investors access to the ESG sector. These include BetaShares Global Sustainability Leaders ETF (ASX: ETHI) and VanEck Vectors MSCI International Sustainability Equity ETF (ASX: ESGI).
Biden brings new future
The incoming Biden administration marks a distinct shift in direction for the United States. Many of Biden’s priorities are in sharp contrast to those of his predecessor. With control of Congress, Biden is in a prime position to lead the United States to a new future. This will have flow on effects for ASX shares, with investors eagerly awaiting the outcome of Biden’s policy initiatives.
