The ‘Trump trade’ and the continued rise of artificial intelligence will be two of the biggest investment themes in Australia and around the world in 2025.
The term describes a shift in market sentiment in response to President-elect Donald Trump’s economic policies, such as tax cuts and deregulation, along with threats of tariffs against countries such as Canada and Mexico and fears of a trade war with China.
The communist superpower controls 70 per cent of the world’s rare earth minerals, which are used to make essential electronics, and any disruption to trade could prove a boon for Australia’s mining sector.
Canadian Prime Minister Justin Trudeau resigned this week after nine years in the top job as his popularity plummeted in part due to pressure from a threatened 25 percent tariffs on Canadian goods by the United States. .
Australian Prime Minister Anthony Albanese said he has advocated for Australia to be exempt from any tariffs under Trump’s “America First” policies.
Investors will be watching to see if the astonishing returns of the ‘Magnificent Seven’ tech companies (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla) can continue for another year as founders like Elon Musk and Mark Zuckerberg settle in. to the new American leader.
Trump hasn’t even been sworn in for his second presidential term and his pronouncements and potential policies have already moved markets, including sending Bitcoin to a record high.
Australian Prime Minister Anthony Albanese said he spoke to Donald Trump last year and advocated exempting Australia from any US tariffs.
Bitcoin surged to record levels as Donald Trump took office later this month
The Magnificent Seven American tech giants are up a whopping 67 percent in 2024, boosting the S&P500’s 23.3 percent return for the year.
Excluding those seven names, the return of the other 493 companies in the US benchmark was just 8.1 per cent, says Greg Boland, chief strategy officer at Tiger Brokers Australia.
“So one of the biggest questions going into 2025 is whether the Magnificent Seven will once again dominate the market and elevate the entire market like they have done in recent years,” he said.
The prospect of tariffs has pushed the U.S. dollar to its highest level against a basket of other currencies in more than two years and has also caused a drop in the Australian dollar, which is seen as a more liquid substitute for the Chinese yuan. .
One young Perth-based explorer has even attributed the huge rise in its share price to Trump’s statement about his desire to make Greenland part of the United States.
Energy Transition Minerals is focused on the development of its Kvanefjeld project in Greenland, a world-class uranium and rare earth mineral deposit.
ETM shares, which have traded at two or three cents for the past six months, have soared since Christmas to a more than two-year high of around seven cents.
Trump has said he wants Greenland (pictured) to become part of the United States for strategic purposes.
The adoption of artificial intelligence has continued apace, pushing AI chipmaker NVIDIA into the position of the world’s second most valuable company, behind Apple.
Appen, the ASX’s most notable AI company, saw its share value quadruple in 2024, while data center operator DigiCo REIT’s January debut on the ASX was its biggest IPO of the year, at $4k. million dollars.
Data centers are considered vital to the AI revolution.
“Obviously, everyone is working on AI, and that’s going to be really important,” said fund management veteran Manny Pohl, president of ECP Asset Management, adding that his company does not invest directly in developers of AI. AI.
“We don’t take bets: ‘Oh, this is a company that says it has this AI model and it’s going to be worth two billion because everyone thinks it’s going to be the best.'”
Instead, ECP looks at how existing businesses could apply AI to improve their productivity, mentioning ASX-listed investment advisory platform Hub24 as one company that is using AI to change asset allocation.
“Going forward, this year there will be many companies that will see improvements in their productivity,” Mr. Pohl predicted.
Another fund manager, Rob Osborn of Lazard Asset Management, told AAP that the “AI bonanza” had created a huge disparity between companies with low and high price-to-earnings ratios.
“We’re getting to a point where the market looks expensive… it’s one of those times where most of the market is overpriced,” Osborn said, referring to Australia’s banking sector.
Lazard prefers a fundamental, value-based investment approach, picking up names that are unappreciated or undervalued, he said.
As such, it is investing in Australia’s battered mining sector, which fell 17.3 per cent in 2024, one of three of 11 ASX sectors to lose ground during the year.
“We’ve gotten to the point where we’ve even started buying iron ore names, and we’ve never been fans of iron ore, but at these levels, you’re starting to see some pretty attractive valuations,” he said. saying.
Australia’s mining sector could benefit from a potential trade war between the United States and China.
Lazard also has some investments in the industrial and consumer discretionary sectors.
Osborn named Domino’s Pizza Enterprises and KFC franchisor Collins Foods as two defeated fast-food companies that Lazard believes can turn things around through cost reductions and as inflation subsides.
Domino’s shares lost half their value in 2024, while Collins Foods fell 38.7 percent.
“I think at the end of the day, KFC is a pretty established brand and Collins has an exceptional management team and, over time, we think they’ll get those cost bases under control,” Osborn said.
Another toppled name that Lazard likes is Healius, whose shares fell 16.2 percent in 2024 in its third straight year of losses.
Lazard said that once Healius completes the sale of its diagnostic imaging division, it will have positive cash flow in its pathology business and can begin to focus on increasing its margins there.
“It’s not a short-term issue,” he said.
‘But the interesting thing about Healius is that there aren’t many companies where the government pays 100 per cent of the revenue and you just have to set the cost base. There’s no reason why it can’t improve.’