Nomura says buy these Asian stocks if Democrats sweep the U.S. election

Published Fri, Oct 30 20204:43 AM EDT

(This story is for CNBC PRO subscribers only.) SINGAPORE — Investors may want to increase their portfolio exposure to "cyclical" stocks — especially if there's a Democratic sweep at next week's U.S. election, according to Japanese bank Nomura. The share prices of cyclical stocks typically follow the economic cycle, and would rise on an upturn in the global economy. But instead of simply picking such stocks that appear undervalued, Nomura said in a Thursday report it prefers a more selective strategy to better guard against risks. The bank recommends what it calls "quality-cyclicals-financials" stocks. Screening for certain profitability and market capitalization criteria, Nomura came up with a list of stocks in Asia (excluding Japan) for investors who wish to play the cyclical recovery theme. Here are the stocks that Nomura picked for a six-month investment horizon, categorized by their home market: India : HDFC Bank, ICICI Bank, UltraTech Cement, vehicle manufacturer Mahindra & Mahindra, engineering and construction firm Voltas; China/Hong Kong : New China Life Insurance, Geely Automobile, ASM Pacific Technology, China Yongda Automobile Services; South Korea : Samsung Electronics, SK Hynix, Kia Motors; Indonesia : Bank Central Asia, Bank Rakyat Indonesia, conglomerate PT Astra International Philippines : Ayala Land, Bank of the Philippine Islands; Thailand : energy company PTTEP. Keep a 'barbell' portfolio The Japanese bank said Democrats sweeping the White House, Senate and House of Representatives — commonly referred to as a "blue wave" — will likely result in "the largest increase in fiscal spending" in the U.S. totaling a whopping $4.3 trillion. That include $2.2 trillion in further pandemic relief and $2.1 trillion in potential infrastructure stimulus, said Nomura. Such spending could spur greater economic momentum, which is good news for cyclical stocks, Nomura analysts said. "In any other election scenario, it is far less clear-cut whether we see sustained rally" in such stocks, they said. Still, there are other events beyond the election that could provide "additional kickers" to the stocks, they added. They include the trajectory of the Covid-19 pandemic, progress on any vaccine or treatment development, as well as the outlook for oil prices, Nomura said. But there's no certainty those events will turn out in a way that benefit the stocks, said the analysts. "We think there are several moving parts based on some binary events which are hard to predict and present significant uncertainty ahead," they said. That's why Nomura has continued to recommend that investors keep a "barbell" portfolio with high-quality "growth" stocks on one end, and on the other end, some stocks that can rise in the cyclical recovery story. A barbell investment strategy typically seeks to balance risk and reward by investing in two extremes of high risk and no-risk assets, and avoiding middle-of-the-road choices.

Democratic presidential nominee and former U.S. Vice President Joe Biden speaks before introducing his vice presidential running mate, U.S. Senator Kamala Harris, during their first press conference together in Wilmington, Delaware, on Aug. 12, 2020.

Olivier Douliery | AFP | Getty Images

(This story is for CNBC PRO subscribers only.)

SINGAPORE — Investors may want to increase their portfolio exposure to "cyclical" stocks — especially if there's a Democratic sweep at next week's U.S. election, according to Japanese bank Nomura.

The share prices of cyclical stocks typically follow the economic cycle, and would rise on an upturn in the global economy. But instead of simply picking such stocks that appear undervalued, Nomura said in a Thursday report it prefers a more selective strategy to better guard against risks.

The bank recommends what it calls "quality-cyclicals-financials" stocks. Screening for certain profitability and market capitalization criteria, Nomura came up with a list of stocks in Asia (excluding Japan) for investors who wish to play the cyclical recovery theme.