Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
ASX winners from a Trump or Biden win
What ASX stocks to buy if Trump or Biden wins the Presidency?
In last week’s article we explored the possibility of a Trump second-term presidency and a Biden Presidency. When it comes to politics, we keep opinions and views separate from investment decisions as they rarely add any great significance to the share market. In saying that, however, the upcoming Presidential Election is one of the few political events that can create short-term share market havoc as seen in the last election. In the previous Trump/Biden article we picked one clear US stock winner for a Republican victory and one winner for a Democrat victory. This article will be along the same lines; instead we pick two ASX stock winners.
At the time of writing, odds seem to have swung in favour of Biden and against Trump. Trump is down by about 10 points and in almost all of the swing states to Joe Biden. Media seem to be saying Trump will lose by a wide margin, but we all know how accurate media polls tend to be. Biden is ahead, but the Presidential race will likely remain within the margin of error until Election Day.
Before we talk stocks, here are the main differences between the two parties:
Looking at the table above, it would seem markets would prefer a Trump victory because of his pro-business policies; and Biden, the opposite, is not seen as being as good for business, because of his proposed policies on capital and taxes. This election year, it’s important to take into account COVID-19 and its impact on markets. There were levels of failure by Trump and his administration by squandering crucial lost time. While Trump has dismissively compared the coronavirus with the flu, Biden has laid out comprehensive plans with five basic elements that he would do to address COVID-19. That’s a clear market positive.
An interesting table released by the independent Committee for a Responsible Federal Budget (CRFB) summarised each candidate’s savings/costs. While Trump spends big on tax policy and infrastructure, Biden spends big across the board especially on infrastructure and offsets most of it through higher taxes targeted at high-earners and corporations. Estimates are for Trump to add US$4.95 trillion ($7 trillion) to the national debt, and Biden to add US$5.6 trillion ($8 trillion).
On the ASX – A Trump win will be positive for energy, defence and tech growth stocks, while a Biden win will be positive for healthcare, infrastructure and China-facing stocks.
Buy on a Trump Victory – Austal (ASX:ASB)
The Trump administration and Republicans for that matter, are strong supporters of the US defence industry and the US$721.5 billion ($1 trillion) spent on military hardware and research. Republicans are well known for their pro-military view of budgetary spending, often increasing the military defence budget as the only way to restore a weakened defence industry hit by neglect and misguided policies. It’s of no surprise that the US has the largest budget in the world when it comes to defence spending and a Trump victory should see this spending rise even further. This bodes well for Aussie shipbuilder Austal (ASB).
The South China Sea conflict continues unabated, with China seeking to exert military control over its neighbours with regard to the hotly contested waterways. The US has largely taken a neutral stance despite the 12 July 2016 ruling that saw an independent arbitral tribunal, established under the UN Convention on the Law of the Sea (UNCLOS), publish a clear and binding ruling on China’s claims vis-Ã -vis the Philippines in the South China Sea. After that ruling the US drew a line in the sand and declared China’s territorial grab illegal. In response the battle groups led by the aircraft carriers USS Nimitz and the USS Ronald Reagan were sent to the area to counter an increasingly aggressive China.
Austal is an Australian-listed, Perth-based naval defence ship builder that has primary contracts to design and build two classes of combat vessels for the US Navy (it is the only foreign company ever to be prime contractor in building USN ships). Its flagship vessel is the Littoral Combat Ship (LCS), which is a high-speed, agile and multi-mission combatant that delivers superior seakeeping and performance. Its second class of ship is the Spearhead-class Expeditionary Fast Transport (EPF) ships. Austal has delivered 12 of and 12 of the Independence-class LCS class and 12 of the Spearhead-class to the USN, making a total of 24 ships in just over ten years, including three this year. The company has 45 vessels under construction or scheduled, with 31 ships to be delivered to the US and Australian Navies (and Australian Customs) over the next three years.
Austal has committed to a US$100 million ($139 million) extension to its Mobile, Alabama shipyard to build steel warships (an investment 50% funded by the US Government) and the company says this will increase its naval shipbuilding opportunities threefold.
With an order book of $4.9 billion, a track record of timely delivery and the potential for military conflict in the South China Sea, this is a company that sits in prime position for a rerating. The US recently announced an ambitious plans to expand the US Navy with a range of unmanned and autonomous ships, submarines and aircraft to confront the growing maritime challenge from China. If history is anything to go by, Austal’s share price rises in line with geopolitical events and rising tensions in the South China Sea.
A recent review of US naval could see the US Naval fleet expand to more than 355 ships from 293, clearly aimed at maintaining naval superiority over Chinese naval forces. So in turn, a Trump victory would see these plans maintained. That bodes well for Austal, which is in prime position to reap the benefits of any increase in Naval spending.
Buy on a Biden Victory – Lynas (ASX:LYC)
A Biden win could mark the start of a push towards more renewable energy. And you don’t have to look far to witness this already in action. Clean energy stocks on the NYSE are already trading as if a Democratic victory is imminent, with the Invesco Solar ETF (TAN) up over 130% year to date. Biden promises to spend roughly US$2 trillion ($2.8 trillion) on clean energy and to tackle climate change. This includes the installation of 500 million solar panels within five years.
An instant beneficiary of clean energy is Lynas Corporation (LYC), which is an integrated source of rare earth metals, from mine to customer. Currently China is the biggest producer of rare earths and have a stranglehold on the supply of this crucial set of elements. The rare earths are used in renewable batteries such as the battery used in the Tesla Powerwall. Outside of China, Lynas is the only Western supplier of rare earths, and it will soon become the largest supplier of rare earths to the US, after the company was asked to establish supply of critical minerals that doesn’t rely on China.
With a budget of US$2 trillion, a Biden victory should see Lynas benefit tremendously from a rise in demand and budget spending on solar power units and renewable lithium batteries.
