Stocks add $54bn in largest one-day gain for five years

A stunning rally pushed the market to its largest one-day gain in five years, as investors reassessed Trump’s win.

An electronic display at the Australian Securities Exchange (ASX) shows stocks gains during opening trading in Sydney on November 10, 2016. Australian stocks surged 2.85 per cent at the open on the back of a rally in commodities with investors betting US president-elect Donald Trump will pursue business-friendly policies. / AFP PHOTO / PETER PARKS

The Australian sharemarket won almost $54 billion during trade today, rallying to its biggest one-day rise in five years.

The stunning gains followed heavy losses yesterday, as investors quickly refocused on what they see as pro-growth policies of US president-elect Donald Trump.

At the close, the benchmark S&P/ASX 200 index had shot up 172.2 points, or 3.34 per cent, to 5,328.8, while the broader All Ordinaries index had leapt 170.6 points, or 3.26 per cent, to 5,408.9. The benchmark’s 172 point gain over the session was its largest since October 2011.

The local market largely outperformed its regional peers, with the exception of Japan’s Nikkei 225 which soared 6.4 per cent after similarly heavy falls yesterday.

In contrast, Hong Kong’s Hang Seng index rallied 2 per cent and New Zealand’s NZX50 lifted 1 per cent.

The positive action comes after $29bn was wiped from the ASX yesterday, amid initial fear over what a Trump presidency might look like.

Stephen Halmarick, chief economist at Colonial First State Global Asset Management, said the markets were likely to go through three phases, with today’s positive reaction indicating phase one — initial panic — may already be behind us.

“The ‘risk off’ mode was based on the view that Donald Trump is a vote for significant change in the US political system,” he said.

“This change will likely bring uncertainty and, as we know, markets do not like uncertainty. However it is fair to say that phase one has been shorter than expected.”

The second phase should see strength in equities and weakness in bonds, Mr Halmarick added.

“This is based on the view that Donald Trump’s policies are very stimulatory, expansionary and inflationary,” he said.

“If he is able to get his election policies through Congress, we are likely to see a near-term acceleration in the pace of growth of the US economy and a surge higher in the US dollar.

“Phase three of response to President Trump’s policies is not likely to be as supportive. The key issue here, in our view, is that the inflationary implications of Trump’s policies are likely to see the Federal Reserve raise interest rates much more aggressively than currently priced into markets as inflation takes hold.”

A view of caution around current market euphoria was more prominent from PIMCO chief investment officer Scott Mather, who warned on turbulent trade as the full repercussions of the Trump victory are digested.

“Volatility is likely to stay elevated relative to recent levels,” he said.

“At this point, given uncertainties about Trump’s policy agenda, key government leadership positions and likely changes in foreign and trade policy — and world government and market reactions to those shifts — what is unknown about the outlook outstrips what is known.”

CMC Markets chief market strategist Michael McCarthy went a step further in raising the prospect of a near-term pullback.

“(The latest) action may be as good as it gets for markets for some time. Policy uncertainty and populist agendas rarely lead to sustainable economic growth,” he said.

The local gains were driven by the resources sector after iron ore’s surge to a near two-year high above $US70 a tonne.

Fortescue closed above $6 for the first time since February 2014 after jumping 10.7 per cent to $6.01.

The mining giants were similarly well supported, with BHP bounding 8.2 per cent to a 14-month high of $24.42 and Rio Tinto surging 8.2 per cent to an 18-month peak of $58.13.

Gold miners went in the opposite direction as traders suddenly shunned the idea safe havens were needed.

Newcrest dived 4.4 per cent, Regis Resources plunged 9.4 per cent and St Barbara also skidded 8.8 per cent.

In energy, Santos climbed 4.1 per cent to $3.58, Origin rose 4.2 per cent to $5.42 and Woodside advanced 3 per cent to $28.72.

In finance, the big four largely mirrored the broader market with gains of over 3 per cent.

Westpac’s 4.4 per cent rise led the way, while CBA lagged despite winning 3.4 per cent.

Among other blue chips, Telstra tacked on 0.2 per cent to $4.85, while Qantas lifted 3.1 per cent to $3.02.

Elsewhere, Treasury Wine Estates gained 7.5 per cent after talking up its growth prospects, Cover-More rose 2.6 per cent after reaching a deal with a Warren Buffett-backed group and Surfstitch jumped 5.7 per cent as a bitter takeover battle appeared to be developing.

Meanwhile, the Australian dollar lifted US0.3c through the local session to US76.7c on the back of steady housing finance numbers. The unit has been a passenger on a wild ride for forex markets over the past 48 hours, peaking above US77.8c and slumping as low as US75.9c.

“From a medium to longer term perspective, we maintain our view that the US dollar can make new cyclical highs against most major currencies under a Trump presidency and a Congress controlled by Republicans,” CBA chief currency strategist Richard Grace said.

“Trump’s economic policies are inflationary and will force the Fed to raise the Funds rate at a faster pace than otherwise.”