Trump vs. Biden: Goldman Sachs names the global stocks to play the U.S. elections

Published Tue, Jan 30 20246:44 PM EST

As the U.S. presidential election comes into the spotlight, Goldman Sachs has assessed the potential impact on global markets by changes in regulation, taxation, and other government policies. The Wall Street bank said in a note that if former President Donald Trump returns to power, risks would increase around potential tariffs on European exports and reduced U.S. support for Ukraine. However, it sees U.S. subsidiaries of foreign companies potentially gaining if Trump delivers on a cut to corporation taxes. The investment bank sees large and mid-cap German stocks on the DAX and MDAX indexes as most vulnerable in this scenario due to the high number of export-led companies. "For Europe, the prospect of tariffs on exports to the U.S. (a Trump proposal) and any reduction in funding for Ukraine (gaining support among Republicans) would both be significant negatives for European stocks, in our view," said Goldman Sachs strategists led by Sharon Bell in the note to clients on Jan. 24. Trump has proposed a 10% tariff on all U.S. imports , which could hit Europe hard as it's a major trading partner. Current U.S. President Joe Biden opposes Trump's tariffs proposal. About 20% of exports from the EU go to the United States , with machinery, pharmaceuticals and chemicals taking up a large share, according to the bloc's statistics agency Eurostat. On average, European companies generate 25% of sales in the U.S., but most come from U.S.-based businesses rather than exports from the EU, according to Goldman Sachs. In such a scenario, the proposed import tariffs will not impact revenue from the American subsidiaries. The investment bank said that while high trade correlation sectors like industrials and autos look most vulnerable, defensive markets like Switzerland's SMI index and U.K.'s FTSE 100 "should both be shielded from the direct impact of any tariffs." The Wall Street bank also revealed that a key area of possible resilience lies in its own basket of European companies that have over 50% of sales exposure to the U.S. Stocks in the basket include names like Holiday Inn -owner Intercontinental Hotels Group , Boeing aircraft parts maker MTU Aero Engines , Europe's largest defense contractor BAE Systems , construction groups Ashtead and CRH , and Irish food and ingredients supplier Kerry Group . "In our view, these companies are better thought of as a U.S. pocket embedded in the European stock market rather than a group of companies making things in Europe and selling into the U.S.," the Goldman strategists said. As these companies run substantial U.S. operations and assets, Goldman also sees them as benefiting from potential U.S. corporate tax cuts under Trump. The Republican front-runner has vowed on the campaign trail to lower it further to 15% if he is elected to a second term. With regards to a second presidential term for Biden, the strategists said they would expect "much lower risk for Europe in terms of trade/funding for Ukraine." However, they flagged that Biden has mentioned increasing the rate of corporate tax, "which would have an impact on US-exposed companies." — CNBC's Michael Bloom contributed reporting.