Does Australia need a Trump figure to fire up the share market?

Australian share market ASX Trump

There are few more divisive figures than Donald Trump but from a purely selfish motivation, he has been great for the share market.

This week was a great example as the Australian market came close to plumbing four month lows but the US market continued on its merry way, with record highs recorded five days in a row.

Some of that optimism over US tax reform finally caught on over here with a strong performance on Friday helping to push the ASX 200 up 0.7 per cent on Friday to eke out a 0.2 per cent rise for the week.

Aussie market underperformance is becoming more pronounced

Still, the underperformance of the Australian market is becoming more pronounced over time, showing the need for international diversification for investors big and small.

The US S&P500 is now up 15 per cent since Trump’s tax reform proposals while the lacklustre Australian market is up just 0.4 per cent.

Since Trump’s election last November, the Dow Jones Index has recorded a smidgeon under a 25 per cent gain and is now more than 50 per cent higher than its pre-GFC record high.

Our market is up a puny few per cent higher since the US election and will still need to put on a spurt of 15 per cent to even reach its pre-GFC high.

Australia’s concentrated market

Of course there are a lot of reasons for the Australian markets to lag offshore markets apart from President Trump.

Our market is unusually concentrated to the extent that if you remove four banks, two resources companies a telco and a couple of big retailers, our market would look like a completely different animal.

For this reason our market took off during the mining boom as the share prices of our big two miners and their smaller cousins boomed in synch with the mining boom but once that boom ended, those mining stocks acted like an anchor on our index.

Lack of technology stocks

Similarly, the Australian market lacks exposure to large technology companies such as Apple, Amazon and Google – a sector which has a lot more visibility in the US market.

All of which should persuade even the most ardent of loyal Australian investors to diversify by both location and currencies, to get access to many different types of companies and sectors that are not strongly represented here.

Small caps show the way

As usual, below the serene surface of the broader Australian market, there was a flurry of activity in the small caps space which is always more volatile and subject to larger percentage changes in response to company specific announcements.

ASX 200 vs ASX small ordinaries Australian market
2017 YTD: ASX 200 vs ASX small ordinaries index.

Empire Resources (ASX: ERL) this week did the equivalent of the old-time Ballarat and Bendigo gold miners who threw nuggets on to the floor of their local stock exchanges in announcing the first gold pour from its Penny’s Find mine, 50 km northeast of Kalgoorlie in Western Australia.

While the response is a little more muted compared to those gold rush days, Empire should have plenty of upside should its current exploration show that the open pit mine can progress to an underground phase.

Still on the gold theme, Pilbara gold hopeful De Grey Mining (ASX: DEG) this week shored up its exploration coffers with the announcement Kirkland Lake Gold has agreed to purchase up to $5 million De Grey Mining shares.

As Small Caps reported last week, the Pilbara has been a hot spot for gold explorers after Novo Resources and Artemis Resources drew similarities between conglomerate-style gold mineralisation at its Purdy’s Well project and the rich Witwatersrand gold reef in South Africa.

De Grey Mining shares rose sharply after it announced the discovery of a new outcropping gold conglomerate within the Indee gold project area.

De Grey has also put its foot on some extra tenements surrounding Indee, so there is no shortage of exploration targets now.

Chalice Gold Mines (ASX: CHN) was also caught up in the Pilbara gold rush, with its shares surging after it announced a big increase in its West Pilbara gold project area and a new drilling campaign.

Also getting in on the Pilbara act and enjoying some great share price rises was Kalamazoo Resources (ASX: KZR), which put its foot on some ground in the same area as De Grey Mining and Novo Resources have made significant nugget finds.

Preliminary scouting at DOM’s Hill within that area has identified gold in soil anomalies and uncovered 300 ounces of gold nuggets.

Kalamazoo shares managed to more than double on Friday alone!

Pot stocks growing

There have been some interesting developments in the so called “pot stocks” with emerging medicinal cannabis producer MMJ PhytoTech (ASX: MMJ) announcing that its majority owned subsidiary Satipharm AG is getting regulatory approval to sell its cannabidiol (CBD) prescription capsules in Australia.

The company also gained the German free sales certificate for its CBD as a food supplement, which reduces international export constraints.

Shares in Medical grade cannabis developer MGC Pharmaceuticals (ASX: MXC) also rose after it announced it had signed a five-year supply agreement for its medicinal cannabis flower products with European-based pharmaceutical distributor Lenis farmacevtika.

Week ahead

This week there are a few potential market moving events, including the minutes of the last Federal Reserve meeting in the US and some retail sales and inflation data.

Here in Australia on Tuesday the release of National Australia Bank’s September business survey and some measures of personal lending in the form of home loans and credit card debt.

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