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Trump, resources and an ASX market rally

December 20th, 2016 · Greg Atkinson · 6 Comments

The U.S. election result has thrown another Brexit event at the markets and once again the markets have done and are doing the opposite of what many experts predicted. I did not focus on the U.S, election in too much detail and expected any post election rally or sell-off to be short-lived. However just as the sky never fell when voters in the U.K. decided to leave the European Union it’s has remained in place after the surprising win by Donald Trump. The biggest surprise though is that the so called “Trump Rally” keeps on going and so far, the Australian stock market seems to be following the lead and since early November has staged a fairly strong rally also.

I guess the prevailing wisdom is that the Australian stock market is riding higher mainly on the back of the so-called Trump rally, although higher commodities prices have also helped and lifted the fortunes of mining stocks like BHP Billiton and Rio Tinto. Of course in reality there are many factors that drive markets higher or lower but for now the trend is certainly upwards.

S&P/ASX 200 Index – 1 Year Chart (December 2016)

ASX 200 1 Year Chart (Dec 2016)

In regards to the ASX 200/All Ords the questions for now is will the rally keep going until the end of the year or has the rally been overdone? Looking at the chart above it seems the market is primed for a pull-back towards 5200. I say this for two main reasons; firstly because the Australian economy is not in great shape and is still struggling to deal with the end of the mining boom. This means fundamentally speaking, I wonder why the market has rallied at all. Secondly, it’s almost become a routine now that the Australian stock market heads towards a multi-week high and then falls back again. It just can’t seem to keep a rally going.

One bright spot has been that some of the resources related stocks have done quite well this year with BHP Billiton being a good example.

BHP Billiton (ASX:BHP) 1 Year Stock Price Chart (December 2016)

BHP 1 Year Chart (Dec 2016)

I have focused on BHP shares quite a bit over the years since it really does sum up the state of the resources/hard commodities sector fairly well. BHP shares were smashed as the commodities bubble deflated, but this year it has staged quite a recovery and the share price is up from a low earlier in the year by just over 85%. Of course it’s easy to spot the low in hindsight but I did suggest this was a stock to worth watching back in October 2015. ASX Blue Chip Stocks – A Time to Buy?

My guess is that the hard commodities sector will recover over the next few years and probably the worst is over for the big diversified players. Of course stock prices may and will probably fall at times, but it’s a sector I reckon that’s well worth having exposure too.

Now for a stock that has not has a good year – Telstra.

Telstra Corporation (ASX:TLS) 1 Year Chart (December 2016)

TLS 1 Year Chart (Dec 2016)

Telstra (TLS) used to be a reliable blue-chip stock that you could own and almost forgot about. Every now and then a dividend would arrive and you would be reminded it was in your portfolio. But this year it’s been on a bumpy ride and it’s now back down to a price which for me, makes it interesting again mainly because of the fully franked dividend it pays. The problem with Telstra though is that the management often seem to find novel ways to destroy shareholder value and so it’s a blue chip stock I am generally wary of.

Finally a quick look back at the ASX All Ordinaries Index just to keep everything in perspective. The chart below covers the last five years and as I have written before, not a lot has changed over the last few years.

ASX All Ordinaries Index (XAO) 5 year chart (December 2016)

All Ords 5 Year Chart (Dec 2016)

The All Ords Index (XAO) is around levels today pretty similar to where it was back in mid 2013. It has been unable to post another strong rally as it did back when it hit a low near 4,000 and has been drifting along ever since. It may finish the year on a high, but I doubt either the All Ords or ASX will finish 2016 on a multi-year high. Maybe that’s something we can look forward to next year?

Anyway for now I’d like to wish everyone a Happy Christmas and all the very best for 2017!

This article was written by Greg Atkinson who is the Managing Director of Ohori Capital. Greg is from originally from Australia but now works and resides in Japan. He can be followed on twitter via GregAtkinson_jp


6 responses so far ↓

  • 1 Stillgotshoeson // Dec 20, 2016 at 4:39 pm

    2017 is the last year I thought we could get through with out a major pull back on the DOW.

    As for the major miners BHP and RIO, Vales mine in Brazil is tipped for record output next year. That may dent the fortunes of other IO miners.

    Telstra does not appeal to me at this time. As an income stock it has some attraction but growth is woeful.
    Probably better choices with a lower yield but better growth potential. With the recent changes to super, as a stock to hold for income/retirement purposes I would hold Telstra out of the Pension Account of super with the $1.6M cap. It is allowed to grow from what you have in it at time of setting it up so I’d look to have growth/income stocks in that portion of my account at retirement and take the income from the accumulation based stocks.

    A very Merry Christmas to all and may 2017 be prosperous for all of us.

  • 2 Lachlan // Dec 25, 2016 at 8:32 pm

    Yes, Merry Christmas and Happy New year Greg, Biker and Shoes and to the lurkers. And my we all be blessed by Trumpflation 🙂

  • 3 Stillgotshoeson // Dec 26, 2016 at 6:45 pm

    Had a chat with a well known financial advisor, no not TBI, Biker. He says we can’t segregate. If you have a $3M superfund then % applies to the $1.6M and $1.4M for taxation purposes. Was hoping to be able to play that to my advantage.. Never mind.

  • 4 Biker // Dec 27, 2016 at 7:07 pm

    🙂

  • 5 Lachlan // Dec 31, 2016 at 5:34 am

    Well there’s optimism seeing the fed has raised twice now and Trump is talking fiscal stimulus. And the China story looks better for Oz coal and iron at present. Oil price has strengthened more.
    On the other hand…the USDX has broken out to the upside of its recent consolidation pattern. The 103.65 is the 52 week high now. The AUD is price technically weak and appears to be on the verge of new downside action to a new post approx 2010 low…possibly. Gold shares were very bullish yesterday however the metal price itself has been very sad of late.

  • 6 Greg Atkinson // Jan 3, 2017 at 11:54 am

    It’s hard for me to get too optimistic when the Baltic Dry Index is below 1,000 and world trade growth is sluggish despite vast amounts of liquidity being pumped into the markets. Still I am always ready to be surprised 🙂

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