BlackRock backs growth stocks to perform on divided US government

Hong Kong — If the US ends up with a divided government it could mean limited fiscal stimulus, capped increases in bond yields and dampened inflation expectations, while risk assets get a boost, according to BlackRock Investment Institute.

Some fiscal relief “looks possible” in the near term, but the size and scope will be more modest than it would have been with a united Democrat government, the BlackRock team wrote in a note published on Saturday.

Democrat Joe Biden won the presidency and his party retained control of the House, but appears unlikely to take control of the Senate. The prospect of a divided government has driven down yields and the environment bodes well for credit and growth companies, according to the note.

Developments point to a return to a near-term market environment dominated by “low rates, a hunt for yield and growth stocks”, it said.

The global financial market had a volatile week as investors awaited the outcome of US elections. Tech and health-care stocks helped the S&P 500 index gain 7.3% last week, while 10-year US Treasury yields retreated by about five basis points. The greenback weakened.

BlackRock Investment Institute expects tech and health-care companies, as well as quality and large-cap stocks, to perform well under a Biden presidency with a divided government. Assets in emerging markets may benefit from improved trade sentiment, especially in Asia outside Japan, it said.