Banks and tech stocks drove ASX to record highs, but markets may be underestimating Donald Trump's trade wars
As 2024 begins to feel like a distant memory, now might be a good time to look back at the year in shares — and where you could have earned (or lost) the most money.
Overall, it was a strong year for the ASX, which climbed to 24 new record highs — with most of them happening between September and November.
This was mainly driven by events in the world’s largest economy.
Around that time, interest rates started to fall in the United States, and Donald Trump won the US election (as he promised to slash corporate taxes and loosen regulations in America’s financial sector, among other things).
Locally, the ASX 200 Total Returns index (which includes dividends) jumped 12 per cent over the past year.
While it’s certainly higher than earning interest from the bank, it’s nowhere near as impressive as how overseas stock markets performed in the past 12 months.
The gains on the ASX 200 paled in comparison to its global peers. (ABC News)
Wall Street’s key indices, the S&P 500 and Nasdaq Composite, surged 25 and 31 per cent, respectively.
There are several factors behind the superior performance of US markets.
For starters, the US Federal Reserve has already started cutting interest rates — which reduces the cost of borrowing money, and encourages people to put their money in riskier ventures with higher returns (like shares).
In contrast, many of Australia’s leading economists are predicting the Reserve Bank will only start cutting rates from May onwards, as it needs to see more evidence of inflation falling sustainably towards an acceptable level (2 to 3 per cent).
Another reason is that the companies which saw the largest gains in their share price this year are ones that are investing heavily in the “next big thing” — artificial intelligence (AI). This includes Nvidia (+185pc), Tesla (+74pc), Amazon (+49pc), Google’s parent company Alphabet (+30pc), Apple (+38pc) and Microsoft (+17pc).
So given Australia doesn’t have megacap tech stocks with an outsized influence on the broader market, the ASX didn’t rise anywhere near as much.
CBA term deposits are better value than its dividends
But it does have a small technology sector, full of companies that many casual investors wouldn’t recognise (like logistics software firm WiseTech Global and data centre operator NextDC).
When dividends are factored in, tech was the sector which outperformed on the ASX 200, with its value surging 51 per cent in one year, followed by financials (+36pc), consumer discretionary (+26pc).
Technology was the best performing ASX sector in 2024. (ABC News)
The financial sector received a boost from shares of the major banks including Commonwealth Bank (+37pc), Westpac (+41pc), NAB (+21pc) and ANZ (+11pc).
CBA, in particular, is looking overvalued. Its share price is 26 times higher than analysts’ estimates of its earnings over the next year (also known as its price to forward earnings ratio), making it the most expensive bank in the world.
In comparison, shares of America’s banking giants (ie. JP Morgan and Goldman Sachs) are 14 times higher than its forecast future earnings — and their profits are much higher than CBA.
“The ASX Big Four banks have had a tremendous run in 2024,” Wilson Asset Management’s lead portfolio manager Matthew Haupt wrote in a note to clients.
“CBA’s dividend yield of 3 per cent now pales in comparison to the 4.5 per cent return you could earn in a CommBank term deposit. While they are great businesses, this does not represent value to us.”
At the other end of the spectrum, energy (-15pc), materials (-13pc) and consumer staples (-1pc) were the sectors which suffered the steepest losses.
The energy sector, which is dominated by the likes of Woodside and Santos, was “impacted by the outlook in terms of supply and demand for oil,” according to Julia Lee, head of client coverage at FTSE Russell.
Indeed, a barrel of Brent crude oil has plunged from its peak ($US91 in April), and is now fetching around $US74.
It was partly due to relief that a full-scale conflict did not break out between Israel and major oil producer Iran. It helped that US President Joe Biden pressured Israel to not target Iran’s oil infrastructure (which had the potential to restrict oil supply in the Middle East, and trigger a renewed inflation surge).
There were also concerns about China’s sluggish economic recovery (which has major implications for oil demand, given the Asian financial giant imports more oil than any other country).
Those concerns about Australia’s largest trading partner — particularly the slump in Chinese property prices and construction activity — means it might not require as much steel.
So that contributed to the price of Australia’s key export, iron ore, tumbling from $US136 (in January) to $US103 (in December).
As a result, shares of BHP (-21pc), Rio Tinto (-14pc) and Fortescue (-37pc) fell sharply throughout the year, and weighed on the ASX materials sector.
Best and worst performers
For those who are wondering how they could’ve made a lot of money on the share market (with the benefit of hindsight), these are the stocks which made some of the largest gains:
| Mesoblast | + 813% |
|---|---|
| Zip Co | + 372% |
| Appen | + 316% |
| Nuix | + 233% |
| Superloop | + 224% |
| Life360 | + 203% |
| Pro Medicus | + 168% |
| Telix Pharmaceuticals | + 142% |
| Myer | + 113% |
| JB Hi-Fi | + 89% |
| AMP | + 81% |
| Qantas | + 68% |
| WiseTech Global | + 63% |
Some of them are small companies in Australia’s tech sector, which aren’t profitable yet (Zip Co) — but are benefiting from US interest rate cuts, and potential Australian rate reductions next year.
Biotech company Mesoblast saw its share price skyrocket after it received approval from the US Food and Drug Administration (FDA) for its cell therapy, used to treat children with complications that can occur from bone marrow transplants.
JB Hi-Fi posted better-than-expected earnings, and defied expectations of a slump in discretionary consumer spending.
AMP, Qantas and WiseTech Global rebounded from significant falls in their share price in recent years due to various scandals.
They range from charging clients “fees for no service” on a massive scale (AMP), selling tickets for flights that don’t exist and sacking thousands of workers illegally (Qantas), and a CEO’s court case against a former lover — along with bullying allegations — triggering an avalanche of bad publicity for the company (WiseTech).
On the other hand, these are the stocks where investors could have lost the most money:
| Global Lithium Resources | – 84% |
|---|---|
| Syrah Resources | – 69% |
| Lake Resources | – 68% |
| Liontown Resources | – 67% |
| Core Lithium | – 65% |
| Star Entertainment | – 63% |
| Coronado Global Resources | – 56% |
| Mineral Resources | – 51% |
| Domino’s Pizza | – 48% |
| Pilbara Minerals | – 44% |
| IGO | – 43% |
| Boss Energy | – 40% |
| IDP Education | – 36% |
Most of the companies in the “worst performers” list are lithium stocks.
After all, the price of lithium (an essential component of electric batteries) has collapsed by almost 90 per cent in the past two years — due to massive oversupply of the resource, slowing sales of electric vehicles and China’s sluggish economic recovery.
Star Entertainment, meanwhile, has been found (again) to be unfit to hold a casino licence, reported a massive $1.7 billion annual loss, and was at risk of running out of money (until its lenders stepped in with a $200 million cash injection).
Shares of Mineral Resources tumbled 51 per cent, with the conduct of its founder and managing director Chris Ellison being a significant contributing factor.
In particular, Mr Ellison was revealed to have enriched himself at the expense of shareholders, and an internal investigation found he had “not acted with integrity”.
The mining billionaire allegedly engaged in tax evasion, sold mining equipment to MinRes at overly inflated prices (through an offshore company), rented properties to the company at above-market rates, and was pressured to step down from the managing director role within 18 months.
‘Rocky’ year ahead
2025 is unlikely to be a smooth year for the ASX, with many market observers expecting to see lots of volatility — largely due to the policies of the incoming US president.
Mr Haupt is anticipating a “resurgence of trade wars driven by Trump’s return to office and his commitment to imposing significant tariffs”.
Donald Trump’s proposed trade policies could have far-reaching impacts. (AP Photo: Evan Vucci)
“Markets do not appear to be pricing this potential disruption and should there be any retaliatory measures from China and the EU [European Union] it could be a rocky start to the year for risk assets,” he said.
“The tariffs are seen as a tool for negotiation so headlines will be worse than reality.”
Meanwhile, AMP’s chief economist Shane Oliver is expecting the share market to “return a far more constrained 7 per cent in the year ahead” — particularly given concerns that some areas of the market are looking overvalued.
“Stretched valuations after two strong years, the ongoing risk of recession, the likelihood of a global trade war and ongoing geopolitical issues will likely make for a volatile ride in 2025 with a 15 per cent correction somewhere along the way highly likely.
“But with central banks still cutting rates, with the RBA expected to start cutting in the first half of 2025, and prospects for stronger growth later in the year supporting profits, shares should still see okay investment returns.”