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In just under two weeks, our friends across the pond will go to vote as part of the United States presidential election. Investors around the world will closely monitor the outcome as volatility in the stock market will increase. Here are two UK stocks that I think could do well, depending on the candidate chosen.
Demand-driven inflation
If Donald Trump wins, I think HSBC (LSE:HSBA) could do very well. The global banking giant has operations in the United States, particularly in the corporate and investment banking division.
Some of Trump's policies focus on reducing the corporate tax rate and imposing tariffs on trading partners. In reality, both could serve to increase inflationary pressures in the economy, but also stimulate domestic growth.
HSBC should benefit from this in two main ways. First, higher growth should make the companies it serves more active, including transactions, loans, and even M&A activities. This should increase revenue. Second, if inflation rises, interest rates may have to stay high longer. This should benefit HSBC as it will earn more net interest income if this happens.
One risk is that HSBC has operations in more than 60 countries. Therefore, even if the US division does well next year, it may not have much impact on the share price. The stock is up 11% over the past year.
Investment in infrastructure
If Kamala Harris wins, Beatty Balfour (LSE:ABY) could win. The construction and engineering company is involved in several infrastructure projects in the United States, such as the Port of Long Beach, which is part of a larger $2 billion Middle Harbor project.
Although the stock is already up an impressive 50% over the past year, I think it could continue next year based in part on the election results. This is because Harris has committed to investing in more infrastructure projects, as well as maintaining the portfolio of agreements that the current Biden administration approved.
Interestingly, the company's semi-annual report showed that US construction revenue was $188 million higher than UK construction revenue during that period. This shows that if things take off in the United States, it could materially help increase profitability.
Of course, this is a very competitive area to be in. I imagine a large number of companies will collaborate on future projects if they come online, which could cut into Balfour Beatty's profit margins.
I'm not trying to speculate on who will win the election. Rather I'm going to wait and see what happens. Depending on who wins, I think the respective stocks mentioned could do well over the next year or more. Therefore, I will put both on my watch list and wait patiently for the next few weeks.
