Credit Suisse sees opportunity in construction and pharmaceuticals after US elections

Bond markets and non-residential construction stocks had not yet priced-in the potential risks surrounding the results of the upcoming US elections, strategists at Credit Suisse said.

US Treasuries were expected to fall in 2017 pushing their yield up to 2.14%, but higher yields were possible, regardless of which candidate won, Andrew Garthwaite and his team said in a research note sent to clients.

A victory by Hillary Clinton could see a bounce-back in US growth, Garthwaite said, noting signs that businesses had pushed back investment decisions while they awaited the outcome. Higher minimum wages and perhaps a looser fiscal policy too might accompany a Clinton victory.

On the other hand, if Trump came out on top that could see inflation move higher and 'fiscal reflation'.

Equities had largely priced-in the risks, the Swiss broker said, although for this asset class a win by either candidate might have positive implications.

Stocks had closely tracked Clinton's performance in the polls.

However, even should Trump win - with the proviso of only "moderate" protectionism - that might not be that negative for the stockmarket, Credit Suisse said, due to the potential for corporate tax cuts and fiscal reflation.

"Both a Trump or Clinton victory probably raise inflation expectations and macro surprises, with both positive for equities," the broker said.

Regarding pharmaceuticals shares, the broker pointed out that they had outperformed following a presidential contest on four out of the last six ocassions.

"Overall, we think some positive fundamentals have been overlooked (self-help potential, new drug discoveries, drug PPI pricing). The key is to focus on innovative drug companies (such as Novartis and Bristol-Myers)," he added.

On the flip-side, non-residential construction stocks were not yet discounting any improvement in their prospects, Garthwaite judged.

Hence, both Clinton and Trump's infrastructure policies made the sector an attractive choice, with the strategist highlighting Wolseley, CRH and Halma among the UK-listed stocks which screened best.

Lastly, investors had pushed the Mexican peso too low he said, base purchasing-power-parity discounts that currency looked as cheap was back in 1995 and implicitly meant markets were assigning a 25% probability to an extreme NAFTA scenario, "which is too pessimistic" the broker concluded.