The one thing every Australian investor needs to do to capitalise on Donald Trump win
Evidence shows Australian investors have been pulling back from US markets but if they want to cash in on a Trump presidency then they are moving in the wrong direction.
Business
Don't miss out on the headlines from Business. Followed categories will be added to My News.
The markets never lie. This week, after the Donald Trump election victory in the US the sharemarket signalled a big fat reality check every Australian investor needs to know.
The sharemarket bounce from Trump winning a second term is a US-only event; the Australian sharemarket did not join the party.
For local investors the writing is on the wall. If you don’t have exposure to the US markets you will be left behind; therefore the one thing an investor must do is find ways into the US sharemarket.
Until very recently there has been a debate about whether it’s worth the effort to diversify out of Australian shares, especially since our market offers a dividend payout that is twice the Wall Street average, not to mention the additional bonus of franked dividends.
An alarming report from global bank HSBC says that the number of Australian investors “who would consider investing in overseas markets” is actually dropping – from 49 per cent in 2022 to just 40 per cent today.
Those HSBC numbers reflect averages, and a closer look will show older investors stick like barnacles to the ASX while younger investors are more likely to have holdings in the big US tech stocks or exchange-traded funds (ETFs) with a Wall Street focus.
Those younger investors are the winners. US shares have beaten the hell out of Australian shares year after year. This year was meant to be different, but it’s not going to be different at all.
Here are the numbers: The ASX, year to date, is up 8 per cent while on Wall Street the S&P 500 is up 26 per cent.
No amount of dividend imputation is going to level up those numbers.
What’s more, the Trump rebound has sharpened the contrast. In the first trading session after Trump’s election US markets lifted by 3.5 per cent. The ASX did nothing; our market was as flat as a Kamala Harris election night party.
Looking further out, the election of Trump and his protectionist policies is bad news for China. In turn that could be bad news for the ASX and especially for the big miners such as BHP, Rio and Fortescue.
It’s early days and Trump will not get to do everything he wants. But on the trade front there is every chance that he will impose tariffs, especially on China. At the same time he will deregulate broadly at home – a move which will turbocharge US stocks and speculative assets such as bitcoin.
Investors will also take a second look at gold. Some investors will always find strong reasons to back gold as an alternative asset. Long term, the volatility that invariably accompanies Trump could be good for gold but, short term, a rising US dollar will not be helpful.
The other upside for savers, as opposed to investors, is that Trump’s cocktail of tax cuts and tariffs may delay rate cuts by our RBA.
Keep in mind we have just had an extraordinary few days on bond markets whereby the US Fed cut rates on Thursday but bond yields moved higher all the same.
If this pattern continues, Australian term deposit rates, which were expected to dwindle further in the months ahead, may now be stable well into 2025.
But for now, its all about the sharemarket and the only question is the degree to which Australian investors should diversify their holdings into the US.
The story of the week is that Trump’s tax cuts and his unalloyed support for ‘‘old’’ industries imply that the blue-chip leaders of the American sharemarket will do very well. There is also the theory that oil and gas stocks will fly higher, while those with an ESG focus will fade, although the narrative rarely plays out in such a simple fashion.
As for the technology giants, it is a mixed bag. Tesla obviously now has close links with a new US president through Elon Musk (who may even have a formal role in the Trump administration). Tesla stock jumped the highest of all tech stocks after the election.
Facebook is seen as much less favoured by Trump; similarly, Google and Apple offer a mixed picture.
Every investor will make their own decisions but on this occasion, the obvious move for a conservative Australian investor is to buy a US-focused fund – either an active fund with a strong track record or an exchange-traded fund which aims to reproduce the average return on US markets.
Take a look at the performance of Vanguard funds, year to date. The Australia-focused VAS is up 8.4 per cent, the global market VSG is up 20 per cent, but the VTS (Total US Market) is up 27 per cent.
Wealth advisers suggest that investors who really want to do a deep dive might consider US-focused ETFs that are market-weighted. This would mean the fund is less loaded up with the tech titans and more likely to outperform on the back of Trump’s support for old economy stocks.
As financial adviser Hugh Robertson of the Centaur Financial Services puts it on the latest Money Puzzle podcast: “There are real opportunities now in the US market.
“I would say to people about investing offshore don’t be scared, it might actually be smarter than investing domestically.”
More Coverage
Originally published as The one thing every Australian investor needs to do to capitalise on Donald Trump win
Don seeks new slice of life
What’s next for Brisbane pizza king Don Meij who announced this week he was leaving the Domino’s fast-food empire he built into a $4bn colossus over more than 30 years?
City’s chance to shine as stock pickers come to town
He was the first presenter at the very first Sohn conference in 2016, and now Adelaide’s David Prescott is hoping to put his city on the funds management map.