US election results could wipe value off shares

The likely Democratic takeover of Congress in this week’s mid-term US elections could create “headline risk” for some industries and hit share prices, according to research by UBS. Sectors such as pharmaceuticals, biotechnology,... See more » The likely Democratic takeover of Congress in this week’s mid-term US elections could create “headline risk” for some industries and hit share prices, according to research by UBS. Sectors such as pharmaceuticals, biotechnology, coal and telecoms could see their share prices hit by more aggressive Democratic policies. Thomas Doerflinger, author of the research, said: “It’s an important investment theme that could come from the Democrats having more power.” Pharmaceutical and biotechnology stocks are vulnerable if Democrats succeed in winning back either the House of Representatives or Senate this week, because the party will seek to give the government more power to negotiate lower drug prices. Even if the Democrats win either house, their majorities would be small and President George Bush could veto any legislation. Therefore, UBS suggested the pharmaceutical industry faced more sentiment risk than meaningful legislative action. “In some of these industries, it’s more about headline risk,” said Doerflinger. Coal and oil shares could suffer if the Democrats are able to focus more national attention on climate change and energy efficiency, while Wal-Mart may be subjected to greater investigation by Democrats, whose labour-union backers dislike the discount retail chain. By contrast, companies boosted by a Democrat victory include FannieMae and FreddieMac, the government-sponsored mortgage providers riled by Republican attacks in the wake of accounting scandals. Clean-energy companies would receive a boost from a sharper focus on climate change, while Democrat opposition to lower estate and capital gains taxes increases demand for life insurance, which could be a boon to that industry. With the polls showing a knife-edge race to win control of Congress, Doerflinger said share prices could prove volatile. “My sense is that these things are never full priced in when there’s so much uncertainty about what the outcome might be,” he said. See less »

Clean-energy companies would receive a boost from a sharper focus on climate change, while Democrat opposition to lower estate and capital gains taxes increases demand for life insurance, which could be a boon to that industry....