TOKYO -- Investors have snapped up U.S. and Japanese stocks that they expect will benefit from the election of Donald Trump as American president, but they are now becoming more selective, focusing on the Trump policies that have a real chance of being implemented.
Funds are flowing into shares related to the defense and health care policies supported by the Republican Party, which controls both houses of Congress. On the other hand, infrastructure-related stocks are on a weak footing.
Japanese defense system provider IHI saw its shares rise as much as 7% on the Tokyo market Tuesday, reaching a 2016-17 high. Aircraft and components builder ShinMaywa Industries also rose as much as 3%.
The Trump administration seeks to increase America's defense budget by $54 billion, the U.S. Office of Management and Budget said Monday. Trump "is able to agree with the Republicans on strengthening defense capability," said Kiyoshi Ishigane, chief strategist at Mitsubishi UFJ Kokusai Asset Management.
In the U.S. market, Boeing has fared well, as has aerospace system supplier Honeywell International. The stocks have outperformed the Dow Jones Industrial Average since Jan. 20, the day Trump took office.
On Trump's move to repeal the "Obamacare" health care program of predecessor Barack Obama, "some aspects likely will be achieved with support from Republicans, beating back resistance from Democrats," said Akihiko Yasui, head of research for Europe and the Americas at the Mizuho Research Institute.
Health care shares likely to benefit from the change are being bought. The MSCI World Health Care Index has risen to its highest level in about six months. Since Trump took office, shares of Johnson & Johnson and Merck have gained markedly.
Meanwhile, the market is increasingly opening its eyes to the possibility that "talks with Republican lawmakers will not go smoothly on policies that involve increases in fiscal spending," as noted by a fund manager at Norinchukin Zenkyoren Asset Management. So financial, infrastructure and material stocks have been lackluster.
Last week's news that deliberations on an infrastructure bill may be pushed back to 2018 has weighed on construction equipment company Caterpillar, among others likely to be affected. The realization that it won't be so easy to boost fiscal spending has put the brakes on the rise of U.S. long-term interest rates, putting downward pressure on financial shares.