Are Cannabis Stocks the Hot Stocks for 2021?

In this week's report, Dale discusses Cannabis stocks, which are otherwise known as marijuana, pot or weed stocks, and whether they will be the hot stocks in 2021. He will also analyse the growing concerns with the China sanctions and where the Australian stock market is heading over the festive season.

Is China a real threat to Australia?

The war of words and sanctions from China has escalated over the past week and this is causing concerns not only for industry in Australia but also for all Australians. There is a consensus from the public that China is buying up Australia, so what are the facts?

According to the Department of Foreign Affairs and Trade, the foreign investment statistics indicate that China is sitting in ninth place with just 2 per cent of the total investment in Australia while Hong Kong is in fifth place with 3.7 per cent. The leading foreign investors in Australia include the US with 25.6 per cent followed by the UK sitting at 17.8 per cent.

Despite China only ranking in ninth place, it does make strategic investments such as the acquisition of the milk processing company Bellamy’s, which it did last year and they continue to buy farmland around Australia. The Chinese tended to buy more of our residential and commercial property after the government changed the foreign investment rules over a decade ago, causing our property markets to rise strongly, which has presented challenges for Australian families wanting to buy their own home. While the government wound back these rules in recent years, resulting in fewer purchases by the Chinese, this may not last forever.

China is our biggest trading partner and there is no question that they need Australia to help their growth plans, so you have to wonder why they are going down the path they are at present, as they seem to be achieving the opposite of what they want. Australians are fed up with the recent attacks from China and are asking our politicians to not just stand firm, but to strengthen laws around Chinese investment in Australia.

The Chinese have so far stayed away from implementing tariffs on iron ore, which is the one thing they need from Australia, and I do not believe this will change, which means our miners will be safe in the near future. However, investors need to exercise caution if they own companies that heavily export to China, like Treasury Wines Estate. In fact, now is not the time to cherry pick stocks that have fallen heavily because of the tariffs in an attempt to grab a bargain, as this is very high risk.

So what were the best and worst performing sectors last week?

Despite the Australian stock market rising, it again experienced a relatively flat week, with Information Technology being the best sector up 3.11 per cent followed by Materials up 2.06 per cent and Consumer Staples up 1.46 per cent. The worst performing sectors included Industrials down 1.53 per cent followed by Consumer Discretionary down 1.19 per cent and Communications Services down 0.97 per cent.

Looking at the ASX/S&P top 100 stocks, the best performers included Link Administration up 12.18 per cent, followed by Fortescue Metals up 11.35 per cent and Xero up 6.34 per cent. The worst performers included Pendal Group down 8.19 per cent followed by Cochlear down 7.12 per cent and Virgin Money down 6.64 per cent.

So what's next for the Australian share market?

As I previously indicated, after such a strong November I expected the Australian market to slow, which is what has unfolded. If we look at the period from the 2nd to the 25th of November, our market rose at an average rate of 44 points per day, resulting in a gain of over 12 per cent. Since the start of December, however, the average rate has dropped to just 18 points per day and the volume of trading has remained steady, suggesting buyers are not wanting to push prices too much.

While the market was not convincing in its move up last week, it was none the less still an up week, indicating we may see further rises into Christmas. That said, I don’t expect the market will rise this year above its all-time high of 7,289 points set back in February.

Anyone wanting to get in on the Santa rally that is being talked up should be cautious because after Santa has left our house for another year, the market tends to fall. Therefore, while I expect our market to rise into January, there is a possibility it will fall for a short period in early January.

To learn if Cannabis stocks are the hot stocks for 2021, watch the video.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.