House View Positioning Update

Global Economic Outlook

In January the IMF upgraded its global growth forecast for 2025 to 3.3%. This however was before the recent announcement of the worse-than-expected tariffs the US plans to impose on its trading partners. The tariffs, if kept in place, will have significant consequences for global trade, economic growth and inflation. We expect growth forecasts to be trimmed this year, and for some countries to experience a recession as a result. Although Trump touts the tariffs as being good for the US economy, the probability of a US recession has risen significantly, with higher prices on imported goods and widespread policy uncertainty denting demand. Countries where exports to the US make up a significant portion of their GDP will also potentially experience a significant hit to growth. Central banks will find monetary policy setting in the environment of slowing growth and rising inflation difficult. This will limit the US Fed’s ability to cut rates to support the economy, at the risk of further stoking inflation. Overall, we are less constructive on the global economic outlook than a few months ago, with the path ahead is both unclear and fluid.

Global Markets

Global equities have struggled this year amid a large-cap tech selloff in the US. Prior to this month, Europe had been resilient compared to the US, with greater unity among European countries and fiscal stimulus plans improving sentiment. The tariff news has however caused a broad global equity market sell-off and has caused investors to shy away from the dollar and dollar assets. The exception has been US treasuries, which have been rallying as investors have sought safety. We have been overweight global bonds in our house view in response to rising global risks and the threat of economic growth disappointing. US Treasury yields had risen to the highest in decades, making the asset viable once again, while any further interest rate cuts would bring about some capital appreciation. In contrast we remain neutral global equities, balancing the expensiveness of US large cap tech against reasonable value elsewhere. For now, we are holding our current positioning because although news flow is largely negative, the situation remains fluid and open to change. We expect to remain flexible in response to any material new information that arises.

Local Economic Outlook

Economic growth in SA has been disappointing but is expected to pick up modestly this year compared to prior years. There is also a chance the SARB might deliver at least one more rate cut in 2025, with domestic inflation under control. The threat of a global tariff war is a risk to the SA outlook which needs to be monitored. The direct impact on SA should be contained given exports to the US make up less than 10% of GDP, but the indirect impact is difficult to know at this stage. A further risk which has emerged on the domestic front relates to the future of the GNU, post the disagreement over the controversial National Budget which has recently been passed by the National Assembly despite the DA not voting in favour. There are now fears of the GNU unravelling, which could be negative for the SA political outlook, however these fears could be premature for now, given discussions remain ongoing.

Local Markets

The SA equity market had a good start to the year but in recent days the JSE has fallen sharply in tandem with global equities on Trump’s tariff announcement. SA nominal bonds have also struggled more recently, partly on global concerns and partly due to domestic political worries, which have caused bonds and the rand to weaken. Earlier this year we trimmed our domestic equity overweight as global macro risks began to rise, and this has proven helpful given the sharp sell-off recently. We are likely to upweight SA equities in the event of further material weakness, given the constructive valuation backdrop, which suggests reasonable medium term returns once the volatility subsides. We remain underweight SA bonds in our house view, which has proven helpful given the deterioration in local political dynamics as well as the spike in global risk aversion.