–Clearly, capital is flowing into small and mid-cap stocks, which have been lagging behind. If the stocks are designated “triple red,” the policy’s driving force will increase.–
On the 13th, there was an assassination attempt on former President Donald Trump at a rally in Pennsylvania, eastern United States. Despite his ear being red from the bullet, Trump stood up and raised his right fist high once morest the backdrop of the Stars and Stripes, giving the American people the impression that he is a man capable of strong leadership. As the view that Trump will return to the presidency in the US presidential election scheduled for November 5th is growing, the financial market is already showing signs of a “Trump rally,” and there is a noticeable inflow of funds into small and medium-sized stocks, which have been lagging behind in the risk-taking mood. Although American companies will benefit greatly from the America First policy, there are also areas where Japanese companies are expected to play an active role as an ally, such as crude oil development and defense-related fields, and investors’ interest in related stocks, which are seen as undervalued, is likely to increase in the Tokyo market.
Donations to Trump from the business sector continue
The circle of industry supporting the election campaign is gradually expanding, with Tesla founder Elon Musk announcing his intention to provide funding to the Trump camp. In addition to who will be the next president, we cannot take our eyes off the situation surrounding the federal elections. Currently, the Senate is dominated by Democrats, while the House of Representatives is dominated by Republicans, creating a “divided Congress.” In order for the Democrats to maintain a majority in the Senate, they cannot lose seats in battleground states with the Republicans, and in this respect, the Democrats are forced into a difficult battle. If the “triple red” (red is the symbolic color of the Republican Party) of Trump being elected president and gaining a majority in the Senate and House of Representatives is realized, the driving force of the Republican Party’s policies will increase even more.
The policy platform recently released by the Republican Party includes a tough stance once morest China, as well as making the Trump tax cuts permanent, promoting the construction of a border wall to combat illegal immigration, revitalizing the US automobile industry and abolishing the mandate for electric vehicles, and lifting restrictions on energy production such as crude oil and natural gas. With huge government debt, the US is in a situation where spending cuts are essential, and it is unclear how aggressively the US can pursue fiscal expansion to rebuild its economy. Although it is undeniable that this is lip service to voters before the election, if global conflicts calm down due to strengthened defense capabilities and energy prices fall as a result of increased crude oil production in the US, it will be possible to fulfill one of the key policies of fighting inflation.
Mitsubishi Heavy shares buoyed by defense-related speculation
Amid the Trump rally, the stock market is paying attention to the defense-related sector first. The period from January 2017 to January 2021, when Trump was president of the United States, is said to be a period when military conflicts calmed down worldwide. There are voices in the market saying, “Trump is a person who favors peaceful economic prosperity over war, and if geopolitical risks recede, one concern for the stock market will be eliminated” (mid-ranking securities strategist). On the other hand, many people believe that a certain level of military power is necessary to bring regarding world peace, and there is a scenario in which the United States will demand even stronger military cooperation from its allies.
The trend towards strengthening defense capabilities is driven by the Japan-U.S. cooperation. [東証Ｐ]Kawasaki Heavy Industries 7012 [東証Ｐ]、ＩＨＩ 7013> [東証Ｐ]There are strong expectations that this will have an effect of boosting the performance of defense-related businesses of major heavy industry companies, including Mitsubishi Heavy Industries, and this has had a major positive effect on the stock prices of these companies. Looking at the Ministry of Defense’s procurement record, in terms of contract amount (FY2022), Mitsubishi Electric 6503 [東証Ｐ]or NEC 6701> [東証Ｐ]Fujitsu 6702> [東証Ｐ]Komatsu 6301> [東証Ｐ]Hitachi 6501> [東証Ｐ]Idemitsu Kosan 5019> [東証Ｐ]Daikin Industries 6367> [東証Ｐ]GS Yuasa Corporation 6674> [東証Ｐ]are among the top companies.
Representative small and medium-sized stocks that have been positioned as defense-related stocks on the stock market include Ishikawa Seisakusho 6208. [東証Ｓ]YaToyo Industry 6203> [東証Ｓ]Tokyo Keiki 7721> [東証Ｐ]Demand for ammonium perchlorate in the defense industry is growing. [東証Ｐ]and Nippon Avionics 6946, which supplies information display systems, etc. [東証Ｓ]Gas mask manufacturer Shigematsu Manufacturing 7980> [東証Ｓ]The company expects to increase its ordinary profit forecast for this fiscal year. Japan Steel Works 5631> [東証Ｐ]The company is expected to see a large increase in orders for defense-related equipment. Stocks with a price-to-book ratio (PBR) of less than 1 include Carlit and Shigematsu Seisakusho, as well as Oki Electric Industry Co., Ltd. (6703), a member of the former NTT family. [東証Ｐ]ShinMaywa Industries, which makes rescue flying boats 7224> [東証Ｐ]Teikoku Sen-i, which has a product line of rescue supplies and equipment 3302 [東証Ｐ]There are brands such as:
● Small and mid-cap stocks related to shale oil and infrastructure are also worth keeping an eye on.
Oil-related stocks are also likely to attract investor interest. If the price of oil falls due to increased production of shale oil, it is expected that the stock prices of oil refiners and other companies will come under downward pressure. However, JGC Holdings 1963> [東証Ｐ]Chiyoda Chemical Engineering & Construction 6366 [東証Ｓ]Toyo Engineering 6330> [東証Ｐ]If it becomes clear that engineering companies such as these will be involved in new development projects, upward pressure on stock prices is also expected to increase.
Stocks that are likely to benefit from capital investment in the oil and gas sector are also likely to be on the radar. Maruyama Manufacturing Co., Ltd. (6316), which makes agricultural brush cutters and high-pressure pumps. [東証Ｓ]Kuraray has launched a new pump product for shale gas drilling operations in the United States. [東証Ｐ]Oval 7727, which has strength and biodegradability as a material for drilling shale oil and gas, supplies PGA (polyglycolic acid) resin. Oval 7727, which has strength in flow meters for oil plants, supplies PGA (polyglycolic acid) resin, which has strengths as a material for drilling shale oil and gas. [東証Ｓ]Nagaoka, which manufactures “screen internals” for catalysts used in the reaction, extraction and separation of crude oil and natural gas, [東証Ｓ]Kuriyama Holdings 3355, which handles highly durable, large-diameter hoses for long-distance water transmission [東証Ｓ]There is a possibility that the search will also be directed at these companies.
In addition, the Trump campaign has also pledged to rebuild cities. If the trend of infrastructure reconstruction accelerates in parallel with the construction of the border wall, machinery manufacturers that have expanded into the area will see a boost in demand. [東証Ｐ]Tadano Construction Crane 6395> [東証Ｐ]In addition to the growing expectation of a boost from North American businesses such as Kyoei Steel 5440, an electric furnace manufacturer, [東証Ｐ]Yamato Industries 5444 [東証Ｐ]However, we can expect an increase in production at local factories. [東証Ｐ]announced a fire at its second factory on the 16th of this month, which caused a downturn in the stock price. The physical damage was limited to the inside of the blower. The company expects North America to account for 58% of its sales this fiscal year.
However, politics is a world of uncertainty no matter where you are in the world, and the possibility of President Biden making a comeback and winning the presidential election has not disappeared. There are also calls within the Democratic Party for Biden to step down, with names of possible successors including current Vice President Kamala Harris, California Governor Gavin Newsom, and Michigan Governor Gretchen Whitmer. If a Democratic candidate who advocates climate change measures becomes the next president, this is likely to boost stocks related to next-generation energy sources such as EVs, offshore wind power, and hydrogen.
Kabutan News
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