How will investors fare in the ASX’s Trump-driven Santa rally?

Professional investors on the ASX are lining up for Christmas presents from the annual Santa rally in share prices at the expense of retail investors.

With the election of Donald Trump as US president increasing investors’ appetite for risk, Sydney analyst David Hunt says professional investors will profit at the expense of retail investors, who will be licking their wounds after the ASX’s extraordinary volatility earlier this year.

Mr Hunt, who is a regular markets commentator on Sky Business News and who advises financial advisers, said: “This is the best time of the year for investors to make their money back.

“The market is less liquid but more predictable because the public goes on holiday. However, the professionals stay in the market so the predictability means good news travels fast and sends stocks higher.”

Of course it should be noted that analyst predictions are no guarantee to come to bear and investors should still take a cautious approach to their investment decisions and seek professional financial advice.

Mr Hunt says Australians can expect this year’s Santa rally to be driven by increased investor appetite resulting from Donald Trump’s election as US president and a rebound in resource commodities.

Mr Hunt says Donald Trump’s election also means:

• Investors feel they can take on more risk,
• Money is moving away from defensive stocks like healthcare, which people buy when they are nervous,
• Sectors likely to drive the market higher in this year’s Santa rally are banking, resources and property,
• Established gold miners can deliver good returns and the big banks are recovering after fears of increasing capital controls subside,
• December is a good time to trade stocks because they nearly always rise then.

The Santa rally usually starts in December and runs into the final week of trading before the New Year.

However, this year’s Santa rally started early, with stocks in the US and Australia rallying since the Trump poll victory on November 9, although markets have fluctuated in the last week or so.

“Every December I have issued strong ‘buy’ and history testing back to 1983 has shown results in about 88% profitable trades,” Hunt says. “Historically, such calls result in clients having potentially 22 winners out of 25 trades.”

Investors shunned resource stocks early this year when BHP Billiton fell to $14.06 but the stock has rebounded to $26 now and will go higher, Mr Hunt says.

“Everyone will love resources soon.”

With the market for apartment construction set to cool, some property stocks that have been sold down are also of interest because they are at bargain basement prices, he says.

For next year, the outlook is quite bullish, with Credit Suisse predicting that earnings per share on the ASX 200 will rise for the first time in three years.

Mr Hunt forecasts stock prices to continue increasing until the middle of 2017 as rising interest rates, tightening bank credit and deepening uncertainty drive people from property markets. The bond market will also continue to be under pressure and rallies should be sold into, he says.

Yet, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may not be replicated meaning investors should approach their investment decisions with caution.

In January, Mr Hunt will issue his annual outlook for the year ahead, with predicted market highs and lows – including charts – for Australian and US stocks and the gold price.