Matt Hopkins* explains what Biden’s presidency means for tech stocks and how it will affect Aussie investors.
Millions of people around the world — particularly in the United States — breathed a sigh of relief as Joe Biden was officially sworn in as the country’s 46th president.
Those involved in the stock market will also be looking at this transition of power in terms of how it could affect their investments.
And it’s not just US investors that should be wary of the change, political events in any country can have flow-on effects that can be felt all over the world.
eToro market analyst Josh Gilbert says this often comes down to uncertainty.
“Often it is the uncertainty that comes with the political decisions that affect the market, as the outcome is usually unknown until it is announced, this can cause volatility within the stock market,” he told Business Insider Australia.
For Australians investing in the US market, many of them will likely have stakes in the tech sector.
While Trump’s presidency wasn’t what some would call stable, tech stocks performed well during the term.
“In the years under Trump, Big Tech performed extremely well,” Gilbert said.
“Reduced corporate taxes have been a big driver for large tech businesses throughout his tenure, with favourable earnings exciting investors.
However, some tech stocks such as Alibaba have been affected under Trump due to his handling of the US-China Trade War.”
With Biden now officially clutching the reins of the US, a number of changes are already coming through.
He’s re-joined the Paris Agreement, for one, and is expected to make regulatory changes within the tech industry, which will favour a market flow-on effect.
“Joe Biden has already announced support for further regulation within the industry and has publicly stated he isn’t a fan of Facebook and Google’s Political advertising policies, which have been under fire previously,” Gilbert said.
“He is, however, expected to provide a better relationship between the US and China, so would provide some relief from Chinese tech stocks listed in the US.”
Those with skin in the US market will be keeping a close eye on these changes and how they’ll affect their portfolio.
“Aussie investors will need to consider any new regulatory changes to the tech sector and how they may affect each business,” Gilbert said.
While a strengthened US-China relationship is positive for the aforementioned Chinese stocks listed in the US, a bill signed by Trump prior to his departure from the White House could still see them de-listed from US exchanges.
Gilbert says valuations could be a good place to look in 2021.
“Tech enjoyed a strong year in 2020 as well, so investors will need to look at Tech stock valuations with some tech stocks trading well above their price to earnings ratio,” he said.
“For example, Snowflake’s Price/Earning Ratio is 294.57, which is much higher than the industry average, which is 40.3.”
While some might be waiting for the dust to settle a little more before making any moves, Gilbert adds that timing the market is very difficult, particularly now.
“We are currently seeing some political unrest in the US, which may affect the markets, but stocks have become resilient over the last year with lots of news and events,” he said.
“Adopting strategies such as dollar-cost averaging allow you to average your investments out rather than having to pick a specific time to invest.”
It’s likely that Trump will be around for some time in some form, as well. While Gilbert says a lot of political powerhouses are cutting ties with the former president, his actions can still have an effect on the market.
Making a 2024 presidential bid or being prosecuted for inciting violence during the Capitol attack are two examples.
“With Trump being so popular amongst these voters, I don’t think we have seen the end of him.”
*Matt Hopkins is a contributor at Business Insider Australia.
This article first appeared at businessinsider.com.au.
