Investment Perspectives

The first quarter of 2025 presented a challenging landscape for investors, characterised by global market volatility and increasing trade tensions. The Trump administration signed executive orders imposing additional tariffs on most imports from Canada and Mexico, as well as all imports from China.

The S&P 500 experienced its worst quarter since 2022. The underperformance of US stocks, particularly in the tech sector, suggests that investors should prepare for continued market volatility.

South Africa’s National Budget was withdrawn from presentation to Parliament on short notice and eventually presented in March 2025. The budget included a proposed increase in value-added tax (VAT), which was opposed by several political parties.

At the time of writing, financial market volatility remains exceptionally high amid conflicting headlines and ongoing uncertainty regarding the extent and direction of tariffs. Financial markets weakened considerably in the first few weeks of April 2025.

This, coupled with discontent from various constituencies, prompted Donald Trump to announce a 90-day pause on “reciprocal” tariffs for countries that had so far refrained from retaliating. It is too early to tell how the escalating global trade war will evolve, but it signals a tectonic shift in global trade and geopolitical dynamics.

Markets

Big Tech stocks, which have led markets in recent years, came under significant pressure in Q1 2025. Nvidia’s shares fell by nearly 20%, while Tesla plummeted 36%. Apple and Microsoft each declined about 10%. As a result, the Nasdaq Composite dropped 10.4% in Q1.

The downturn was primarily driven by concerns over the economy and the potential impact of new tariffs proposed by the Trump administration. In contrast, European equities outperformed their US counterparts, and industrial stocks gained attention due to increased defence spending commitments.

Global equities tracked lower in rand terms in Q1 (-3.82%), amplified by the appreciation of the rand relative to the dollar. The rand strengthened throughout Q1 2025, moving from a weak point above R19 to close the quarter at R18.32. Global bonds were flat, delivering -0.3%, while listed property posted a negative return of -1.0%.

On the local front, South African shares outperformed. The FTSE/JSE Capped SWIX rose 5.85% in Q1, largely driven by the strong performance of commodity producers such as gold and platinum miners. Top-performing shares included Harmony, DRD Gold, Gold Fields, AngloGold Ashanti, Impala Plats, Northam, and Angloplats.

SA equities outperformed nominal bonds for the quarter. Despite the budget uncertainty, nominal bonds returned 0.70% in Q1. The ALBI yield-to-maturity closed the quarter at 10.77%. SA listed property (FTSE/JSE SAPY) continued its tepid performance, returning -3.51% in Q1.

Economy

The global economy showed resilience in 2024, but signs of weakness are emerging against a backdrop of slower growth, persistent inflation, and an uncertain policy environment, according to the OECD’s latest Interim Economic Outlook. The report highlights risks, notably that further trade fragmentation could harm global growth prospects.

The outlook projects global growth slowing to 3.1% in 2025 and 3.0% in 2026, with significant regional variation. Inflation is expected to remain higher than previously forecast, though still moderating as growth slows.

The US economy entered 2025 in good shape, marked by cooling inflation, solid growth, and expectations of rate cuts. However, US consumer sentiment dipped in January for the first time in six months, hitting a three-month low, driven by growing concerns about unemployment and the inflationary effects of the new tariffs.

The escalation of trade tensions between the US and China has heightened fears of a global economic slowdown, underscoring how ongoing trade disputes could hamper global growth.

Uncertainty surrounding the US economic outlook is at its highest since the COVID-19 pandemic. A broad implementation of tariffs would likely raise inflation risks, depress equities, and potentially impede US economic growth.

The outlook for South Africa remains mixed. Figures released in March 2025 showed disappointing GDP growth in 2024, with the economy expanding just 0.6%, below expectations of over 1%.

The South African Reserve Bank’s Monetary Policy Committee cut the repo rate by 0.25% in January 2025 but opted to hold it steady in March, reflecting growing concerns about the global outlook and potential tariff impacts.

A historic event in Q1 2025 was the postponement of the National Budget, exposing tensions within the coalition government. The delay sparked by disagreements over the proposed VAT increase, highlighted misalignment among partners in the Government of National Unity on key economic policies.

Portfolio Positioning

The global outlook has deteriorated due to harsher-than-expected US tariffs, raising the risk of slower growth, higher inflation, and potential recessions in export-dependent economies. The Trump tariffs represent one of the most significant disruptions to global trade in decades. Equity and bond markets have since been marked by exceptional volatility.

Heading into the year and Q2, our portfolio strategy has remained cautious and measured. We maintained an underweight position in local bonds, reflecting concerns that the February budget would fail to meaningfully address fiscal sustainability or long-term growth.

During moments of market strength in Q1, we tactically reduced our overweight in local equities, resulting in a more modest overweight position. While global equity valuations remain high, we have maintained a neutral stance, aware of the ongoing global risks.

To improve portfolio resilience, we increased our exposure to global bonds during recent periods of weakness. We remain overweight in global bonds and neutral in global equities, preserving flexibility in a highly uncertain environment. In South Africa, modest growth and contained inflation support the possibility of a rate cut, though risks remain due to political instability and global trade tensions. We continue to underweight SA bonds due to ongoing fiscal concerns.

There are many pressing questions for investors as we begin 2025: Will inflation continue to ease or rebound? Will the Fed cut rates further, if at all? Can US exceptionalism persist? Yet, no question looms larger for the global investment outlook than: What will Trump 2.0 mean for economic policy?

Outlook

Federal Reserve Chair Jerome Powell has warned that Trump’s tariffs could fuel higher inflation and slower growth. A weakening US outlook poses risks to global economic prospects. Accordingly, the outlook remains uncertain, with fears of a possible US recession.

A Bank of America survey of fund managers revealed record declines in US equity allocations in March, as capital rapidly shifted from West to East. European and Chinese equities are finally seeing uplift in valuations.

We remain vigilant in navigating political risks in the months ahead. Closely monitoring developments in US trade policy and their implications for emerging markets will be key to making informed investment decisions.

It’s important to note that this situation remains fluid. We are actively tracking US-China trade relations and global economic indicators for potential impacts on portfolios.

History reminds us that during periods like this, it’s vital to remain calm and stay invested in line with a long-term strategy.

We have high conviction that our managers are well-equipped to navigate the challenges ahead. Clients can rest assured that our investment capability, driven by a diverse and experienced team, is dedicated to constructing and managing portfolios thoughtfully, ensuring the optimal mix of managers.