Since the assassination attempt on Donald Trump on 13 July in Butler, Pennsylvania, there’s been a proliferation of ‘Trump Trade’ ideas circulating across the media.
Up until last week, a Trump re-election was seemingly baked in. Investors rushed to align their portfolios for a Republican victory.
But now that Joe Biden has withdrawn from the presidential race, Kamala Harris, a younger candidate, looks set to inject new vigour into the scuttled Democratic Party.
With that, the ‘Trump Trade’ is cooling.
Early polls already hint that a Harris vs Trump election will be tight…that’s according to Reuters on Wednesday.
So, what does that mean?
Investors are now as clueless as ever regarding who might win in November!
It comes back to what Warren Buffett says about mixing politics with your investment strategies… Don’t do it!
And it looks like the Oracle was spot on again.
Expect more volatility into November
In Australia, we’re somewhat sheltered from the spectacle unfolding in the States.
But as commodity investors, we can’t ignore it altogether…
The world’s largest economy leads the Western rhetoric on war, geopolitics, renewables, nuclear power, and trade tariffs.
All of these ‘big issues’ impact the commodity market.
Take lithium…a Democratic win will likely lead to further development of renewables, EVs, and lithium-ion batteries.
That could cause a rally in lithium stocks on the ASX.
However, under a Republican administration, fossil fuel companies would flourish, given Trump has been a vocal supporter of domestic oil and gas production.
Echoing former Alaskan Governor Sarah Palin, Trump’s energy policy can be summarised in three words: “Drill, baby drill!”
Trying to guess who might win in this coming election and aligning your portfolio accordingly is a fool’s game.
Each candidate has diverging policies with varying implications for commodity markets, particularly those linked to energy.
Yet, through the fog, some political agendas look far more certain regardless of who wins in November.
Temperature set to rise on China-US relations
At the Republican National Convention last week, Trump and his newly minted running mate, JD Vance, ramped up the ‘America First’ narrative.
Not surprisingly, both politicians were keen to parade China as the bad guy.
There’s little doubt that a Trump-Vance leadership would seek to intensify trade wars against China, something Trump initiated when he first took office in 2017.
Nothing rallies a nation like a common enemy… Trump looks set to juice this strategy again.
But amping up hostilities could be very good for one area of the commodity market… Critical minerals.
Think rare earths, graphite, or cobalt…commodities for which China holds a firm grip on supply thanks to its mining and processing dominance.
So, why would these types of stocks do well under rising tensions?
Critical minerals remain China’s most effective tool against Western trade hostilities.
For the most part, it’s kept this ace up its sleeve.
However, as pressure mounts on the Middle Kingdom, the probability of China weaponising its trade dominance over these key materials grows.
Minerals that are crucial for modern-day manufacturing, from defence, tech and renewables.
After a 12-month hiatus, stocks tied to this group of commodities could return with a vengeance if Trump raises the temperature on US-China relations.
Companies with advanced development projects and the ability to supply the West with alternative supply quickly will be the key stocks to watch.
So, what about the other side of
the political divide?
This is where you don’t need to apply much political guesswork.
The hardline stance against China is one of the few bipartisan policies among Republicans and Democrats.
While the world barely knows what to expect from Kamala Harris, so far, it looks as though she’ll follow along with Trump’s China-bashing style.
Here’s an extract from one of her speeches in late 2022 after visiting Japan:
‘China is undermining key elements of the international rules-based order. China has challenged the freedom of the seas. China has flexed its military and economic might to coerce and intimidate its neighbours.
‘We will continue to fly, sail, and operate undaunted and unafraid wherever and whenever international law allows.’
And in 2019, she co-sponsored the Hong Kong Human Rights and Democracy Act, which aims to promote human rights in Hong Kong and sanction officials involved in ‘undermining Hong Kong’s fundamental freedoms and autonomy’.
These statements certainly aren’t winning any friends in Beijing.
As far as I can tell, the US’s ramp-up against China is as close to a sure bet as you can get, regardless of who wins.
But here’s one more idea…
Markets hate uncertainty.
A power struggle between the world’s two largest economies is a recipe for high volatility.
We’ve already witnessed gold break into all-time new highs this year.
One reason for that has been the return of war in Europe and deteriorating relations between global superpowers.
Yet, this may only be the prelude.
Investors seek gold as the ultimate safe-haven investment. Further breakdowns between China and the US will favour ongoing upside in the precious metal market.
While we all wish for peace and hope cool heads prevail in this titanic showdown…hope offers little respite for investors.
Gold, on the other hand, provides tangible assurances against poor diplomacy and economic mismanagement.
My colleague Brian Chu has just finished a report on the opportunities presenting in this market.
He focuses on the types of stocks to own and how to maximise your exposure to silver and gold according to the different investment cycles in the precious metal market.
To access his latest work, I suggest you check it out here.
Enjoy!
Regards,
 |
James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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