Health-Care Stocks Emerge as Winners From Trump Vote

By Jon Sindreu and Ira Iosebashvili

Health-care companies have emerged as the main gainers from Donald Trump's win in the U.S. presidential election, despite a broad stock market selloff across the world.

The U.S. premarket pointed to a 2% opening loss for the S&P 500 during early European trade, but futures on pharmaceuticals showed sharp rises, led by Endo International PLC, Mylan NV and Perrigo Co. PLC.

The Stoxx Europe 600 index was down 0.5%, but the health-care and mining sectors notched 3.5% and 3% gains respectively. All other sectors were in the red.

Asian shares dipped as well, with pharmaceutical and construction companies faring slightly better.

Investors remain broadly gloomy about the effect of a Trump presidency on financial markets, but have underlined particular areas of the economy that are likely to benefit from his policies.

Most analysts expect health-care stocks, lately beaten down, to rally in the U.S. as well later on Wednesday. Mr. Trump has vowed to overturn President Obama's health-care law, which has squeezed the margins of private insurers. By contrast, Democrat candidate Hillary Clinton had been outspoken against drug-price increases.

"The impression was a Hillary victory could have affected that sector adversely," said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management, which oversees $2.1 trillion.

The firm recommends buying stocks in the U.S. pharmaceutical sector, as well as financial and energy companies, while expecting overall earnings per share in the S&P 500 to rise by 8% in 2017.

European basic-resources corporations, which include miners, also rose powerfully Friday. The rise suggests investors forecast stronger demand for inputs from infrastructure firms in the U.S., which are expected to get a lift under the new Republican president. Working with a Republican Congress, is predicted to make it easier for them to launch fiscal spending initiatives.

"We are going to rebuild our infrastructure, which will become, by the way, second to none," Mr. Trump said during his victory speech.

He has also promised to "rebuild" the U.S. military, potentially boosting stocks in the defense sector. Some investors are hopeful that his pledge to slash taxes will bode well for consumer spending as well.

"This is a good backdrop for retailers and restaurants," said Nick Ford, manager of Miton's U.S. Opportunities Fund.

By contrast, "immigration-related stocks as well as companies exposed to global trade could see some headwinds going forward," said Christoph Riniker, equity strategist at Swiss private bank Julius Baer.

Investors remain split on the effect of Mr. Trump's policies on the financial sector. On one hand, he has appeared unwilling to saddle banks with more regulation. On a shorter-term basis, however, a selloff in global markets is expected by many analysts to deter the Federal Reserve's long-awaited interest-rate increase in December, for fear of further roiling nervous markets. This would lower long-term borrowing costs, squeezing bank profitability further.

Banks were among the biggest losers in the Stoxx Europe 600, falling by roughly 3% early on Wednesday.

Uncertainty about Mr. Trump's policies are likely to continue rippling through global financial markets. On Wednesday, money fled the U.S. dollar and flocked into popular havens such as the euro, Japanese yen and Swiss franc. The currencies of trade-dependent countries--such as Australia and South Korea--plummeted, as did global stock markets.

For markets, the question is whether U.S. stocks will continue to be negatively impacted in the medium term.

"The suspicion is that we are now not talking about fundamentals today, we are talking about sentiment," said Chris Beauchamp, analyst at IG Group. "With a weak U.S. dollar, U.S. markets will look more attractive."

"The hope is that much of Trump's populist rhetoric on geopolitical issues will prove to be just talk," French bank Société Générale told its clients. "The downside risks to the global economy are, however, potentially very significant."

Write to Jon Sindreu at jon.sindreu@wsj.com and Ira Iosebashvili at ira.iosebashvili@wsj.com

(END) Dow Jones Newswires

November 09, 2016 05:42 ET (10:42 GMT)

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