The Independent: Business Analysis: Counting the cost of a new US president: The outlook for some business sectors changes dramatically if John Kerry is elected: “He would also scrap the provision in Mr Bush's energy bill to allow oil exploration in Alaska's national wildlife refuge. UK companies affected include: BP; Shell; Scottish Power; National Grid Transco.” (ShellNews.net)
15 October 2004
How to deal with the bill for caring for the nation's sick has become one of the most pressing domestic issues in this political contest and Wall Street believes it is the area in which the election of Mr Kerry would have the most impact on business. Chief among the changes Mr Kerry has promised would be to force pharmaceutical companies to negotiate directly with the government over the cost of drugs. This would be a shift from the republican's market-based approach, whereby producers strike deals with health insurers, and often involve a string of companies acting as brokers. According to analysts, Mr Kerry's plan to cut out the middlemen would reduce prices by 10 to 15 per cent.
Another likely blow to companies with lucrative patents outstanding is a promise by Mr Kerry to import drugs from countries such as Canada. The companies are resisting both moves, and have claimed that the likely squeeze on their margins will hamper investment in research and development. Mr Kerry has signalled that more of the cost of health care including for America's 44 million with no insurance would be met from federal funds.
UK companies affected include: Astrazeneca; Glaxosmithkline; Acambis.
Mr Kerry told the democratic convention that he would rewrite America's environmental laws, putting the country's oil and gas companies on notice that a change in the administration would spell a major shake-up for their sector. The analysts at International Strategy & Investment say that after healthcare, energy is the second-biggest area in which Mr Kerry would have an impact on business. As well as wanting to cut consumption, he would set demanding targets for more "green" energy, such as wind and solar power.
Analysts believe traditional producers of energy, and their users such as the utilities, would end up footing a large bill for investing in alternative energy in order to meet the democratic goal of making environmentally friendly energy 20 per cent of the nation's total by 2020, up from 2 per cent now. The coal industry looks vulnerable to a plan by mr kerry to clamp down on emissions. He would also scrap the provision in Mr Bush's energy bill to allow oil exploration in Alaska's national wildlife refuge.
UK companies affected include: BP; Shell; Scottish Power; National Grid Transco.
One of mr kerry's enduring themes has been the mistakes made by Mr Bush in Iraq. But he has made clear that a Democratic victory would not trigger a speedy removal of troops or an end to the need to "hunt down the terrorists and kill them". While Wall Street believes that the re-election of Mr Bush would be better news for the sector, Mr Kerry's position has been encouraging. As Bob Doll, the chief investment officer at Merrill Lynch Investment Managers, has said, "The difference between the two is probably more psychological than real".
Even if he were to be elected, mr kerry would not be able to meddle with the money committed to defence spending for two Years. In the meantime, the sector can look forward to a 10 per cent increase in homeland security spending next year and a 7 per cent boost in defence spending.
UK companies affected include: Rolls-Royce; Bae Systems; VT.
Mr Kerry, a state prosecutor before entering The Senate, sent a shudder through the insurance sector when he selected John Edwards a lawyer who has made millions from bringing successful class action lawsuits against companies as his potential running mate. Insurers have already paid out billions in compensation to people suffering from illnesses related to asbestos, smoking and other issues. Now, they fear a democrat presidency will mean a legal regime even more friendly to individuals suing their employers, which ultimately means their insurers.
Mr Kerry and Mr Edwards have tried to assuage insurers' fears, saying they are keen on amending tort law, which covers litigation where a financial compensation payment is required. However, Andy Laperriere, of Isi, said Wall Street was "very sceptical" of their commitment to the cause, pointing out that Democrats do not support the goals seen by many including Republicans as necessary for cutting tens of millions of dollars from the annual litigation bill.
UK companies affected include: Prudential; Rsa; Aviva.
Bond markets are tipped for a boost under a possible Kerry regime because of his plans to slice America's spiralling budget deficit in half within the next four years. While Mr Kerry still has some convincing to do on where the savings would come from, analysts believe his plan would lessen the need for future interest rate rises, which could otherwise reduce returns on bonds and make the debt market less attractive to investors.
In contrast, equities are expected to fare better under Mr Bush, as his focus on low taxes on dividends and capital gains would probably stimulate the stock market. Mr Bush's solution for dealing with the burgeoning costs of financing America's retiring workers, and for its growing medical bill, should be good news for the banks, asset managers and other members of the financial Sector. His plan is to encourage more personal investment with a raft of tax breaks. Analysts at Isi are also tipping gold as an investment under Mr Bush, On the basis that any plans to target members of the "axis of evil" in a second term could prompt investors to seek refuge in the metal.
UK Companies Affected Include: Amvescap.
A worrying sign for business that has come from the Kerry camp surrounds his apparent commitment to reverse the flow of jobs leaving America for lower-cost countries such as India. Sectors including banks, utilities and retailers who have slashed their wages bill by outsourcing are bracing themselves for an end to corporate tax breaks which would still be paid, and even improved, to businesses keeping work in the US under Mr Kerry. Retailers and other labour-intensive companies might be further squeezed under Mr Kerry if, as expected, he raises the minimum wage. Wall Street watchers have, however, pointed out that particularly on outsourcing, Mr Bush might buckle to pressure for more protection for workers in sectors hit the hardest by the exodus of employment overseas.
UK companies affected include: Diageo; Allied Domecq; Cadbury Schweppes; Unilever; Burberry.