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 newly elected President Donald Trump’s economic policies such as tax cuts and deregulation, along with the threat of tariffs on countries like Canada and Mexico and fears of a trade war with China.
The communist superpower controls 70 percent of the world’s rare earth metals, which are used to make essential electronics, and any disruption to trade could be a boon to Australia’s mining sector.
Canadian Prime Minister Justin Trudeau resigned this week after nine years in the top job, as his popularity fell in part due to U.S. pressure for 25 percent tariffs on Canadian goods.
Australian Prime Minister Anthony Albanese said he has advocated for Australia to be exempt from any tariffs under Trump’s ‘America First’ policy.
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 cozy up to the new US leader.
Trump hasn’t even been sworn in for his second presidential term yet and his statements and potential policies have already moved the markets, including sending Bitcoin to an all-time high.
Australian Prime Minister Anthony Albanese said he spoke with Donald Trump last year and advocated for Australia to be exempt from all US tariffs.
Bitcoin soared to record highs when Donald Trump took office later this month
The Magnificent Seven US tech giants rose as much as 67 percent in 2024, boosting the S&P500’s 23.3 percent return for the year.
If you take out those seven names, the return for the other 493 companies in the US benchmark index is just 8.1 percent, says Greg Boland, chief strategy officer at Tiger Brokers Australia.
“So one of the key questions leading into 2025 is whether the Magnificent Seven will once again dominate the market and lift the entire market as has happened in recent years,” he said.
The prospect of tariffs has pushed the US dollar to its highest level in more than two years against a basket of other currencies, and has also led to a decline in the Australian dollar, which is seen as a more liquid proxy for the Chinese yuan. .
A Perth-based junior explorer has even credited Mr Trump’s statement that he wants to make Greenland part of the US for fueling a massive share price rise.
Energy Transition Minerals is focused on developing its Kvanefjeld project in Greenland, a world-class rare earth and uranium deposit.
ETM shares, which have been trading at two or three cents for the past six months, have risen to a more than two-year high of around seven cents since Christmas.
Trump has said he wants to make Greenland (pictured) part of the US for strategic purposes
The adoption of artificial intelligence has continued rapidly, propelling AI chipmaker NVIDIA to the position of the second most valuable company in the world after Apple.
The ASX’s most notable AI company, Appen, saw its shares quadruple in value by 2024, while the January debut of data center operator DigiCo REIT on the ASX was the biggest IPO of the year, at $4 billion.
Data centers are seen as essential to the AI revolution.
“It’s clear that everyone is on the AI topic, and that will be really important,” said fund management veteran Manny Pohl, chairman of ECP Asset Management, adding that his firm does not invest directly in AI developers.
“We’re not betting, ‘Oh, this is a company that says they have this AI model, and it’s going to be worth two trillion because everyone thinks this is going to be the best.’
Instead, ECP looks at how existing businesses can apply artificial intelligence to improve their productivity, naming ASX-listed investment advisory platform Hub24 as a company using AI to adjust asset allocation.
“This year there will be many companies achieving improvements in 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 price-to-earnings ratios and high ones.
“We’re now getting to the point where the market is looking expensive… it’s one of those times where most of the market is excessively expensive,” Mr Osborn said, referring to Australia’s banking sector.
Lazard prefers a fundamental, value-driven approach to investing, picking up names that are undervalued and undervalued, he said.
As such, it is investing in Australia’s battered mining sector, which is down 17.3 per cent in 2024 – one of only three of the ASX’s 11 sectors to have lost ground this year.
“We’ve gotten to the point where we’ve even started buying iron ore names, and we’ve never been a fan of iron ore, but at these levels you’re starting to see quite attractive valuations,” he says. said.
Australia’s mining sector could benefit from a potential trade war between the US and China
Lazard also has some investments in the consumer discretionary and industrial sectors.
Mr 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 cutting and as inflation subsides.
Domino’s shares lost half their value by 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 we think they’re going to get that cost base over time,” Mr. Osborn said.
Another beaten name Lazard likes is Healius, whose shares fell 16.2 percent in 2024, marking a third straight year of losses.
Mr Lazard said that once Healius completes the sale of its diagnostic imaging division, it will be cash flow positive from its pathology business and can start focusing on growing its margins there.
“It’s not a short-term thing,” he said.
‘But what’s interesting about Healius is that there are not that many companies where the government pays 100 percent of the revenues, and you just have to determine the cost base. There’s no reason why it can’t improve.’