By RITA KALRA
It might be too early to say that Wall St's money managers are warming to the idea of John Kerry as president, but an increasing number are taking the idea seriously.
In early June, all 37 hedge fund managers surveyed by International Strategy and Investment thought George W. Bush would win a second term.
But by last week, 53 per cent were expecting a Kerry victory.
For mutual fund managers, the figures have not changed much, and about 80 per cent still see Bush returning to the White House.
On electronic betting exchanges such as Intrade in Dublin, the odds of Bush's re-election slipped from 75 per cent in January to a low of 49 per cent in mid-July, before regaining some ground to 54 per cent this week.
Although many believe Kerry's environmental and health-care policies could hurt profits of energy and pharmaceutical companies, some think the Democratic candidate can guide the economy and improve foreign relations.
His emphasis on fiscal discipline, in particular, scores votes and even money from wealthy Wall St backers.
"There are a lot of people here who have second thoughts about the war in Iraq," said Robert Hormats, vice-chairman of Goldman Sachs International.
"And there are far more than that who are concerned about fiscal responsibility in Washington."
Friday's White House report saying the US Budget deficit would reach a record $US445 billion ($706 billion) this year stoked those concerns.
Kerry has pledged to cut the deficit in half over the next four years.
"Once you get the Budget under control, a lot of good things happen," Hormats said. "Kerry will be good for the economy and, therefore, good for the markets."
Some industries may benefit from a Kerry presidency. Smith Barney analyst David Smith said alternative energy stocks could get a boost from the candidate's support for increased use of renewable energy.
Even some defence stocks, long seen as Republican beneficiaries, could hold ground under Kerry.
The industry as a whole is vulnerable to cuts as the Iraq war winds down and the federal deficit takes centre stage, but a shift in priorities could boost some defence stocks over others, analysts say.
Bush came into office with the goal of transforming the military into a technology-savvy, networked system that could fight wars with fewer troops.
But critics say that vision has left the military too thin and Kerry has proposed 40,000 more active-duty troops, who will have to be equipped.
Charles Gabriel, senior Washington strategist at Prudential Equity Group, said "good old Army contractors" such as General Dynamics, Armor and Alliant Tech Systems stood to gain.
Beyond defence, energy and health-care, investors have had a tough time identifying industries that would be affected by a Kerry presidency, especially if Republicans dominate Congress.
"It's not like he is running on some clearly defined programme," said Steven Bleiberg, head of global investment strategy at Citigroup Asset Management.
"It's hard to figure out who'd be the winners and losers."
Kerry's tax policy is a worry to Wall St. The Democrat candidate wants to cancel recent tax cuts for people making more than US$200,000 a year.
Economists say that would undo the fiscal stimulus that fuelled consumer spending, the heart of last year's economic rebound.
Upmarket retailers such as Neiman Marcus and Nordstrom have reported sales growth this year, but discount stores such as Wal-Mart have said high petrol prices are pinching consumers' pocketbooks.
Consumer spending rose 1 per cent in the second quarter, the smallest increase since the 2001 recession.
- REUTERS
Herald Feature: US Election
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