This has become a bit of a tradition and is meant to help with thinking about the big themes in 2025. No particular order, always a pinch of salt - strong trader views only. ALL TRADER’S VIEWS and happy to discuss the reasoning for those views. Let us know if you’d like to read last year’s list. FEEDBACK as always much appreciated. All views should have a read for our market in some way.
GEOPOLITICS:
* Peace talks between Ukraine and Russia. Ceasefire agreement while talks are happening, this will take time. Rebuilding Ukraine will serve as a massive stimulus for Europe – late 2025, early 2026 the start for this.
* Risk that Israel strikes Iran’s nuclear facilities once Trump gives thumbs up. Risk to trade routes and oil price on back.
* Europeans increasing defense spending and starting to build their own defense strategy outside of NATO.
MILITARY SPENDING:
The percentage of budgets in especially Europe that are going to get spent on defense will grow further. Funding will partly come from less social spending (grants, etc.).
GLOBAL ECONOMY & MARKET VIEW:
American exceptionalism is overhyped. Fiscal stimulus has been a huge part of U.S. growth and markets outperforming DM peer. The U.S. budget deficit will need to get tackled and the market will force the U.S. to do so (rising yields). U.S. growth will be under pressure on back. The Fed-put will only be in place if something breaks as wage and salary inflation plus tariffs are a headwind for inflation (and for the economy). U.S. yields are rising which is a headwind for global risk in general. Yield curve control will be implemented at a later stage.
Elections in Germany will get the Conservatives and the Greens into a coalition. Fiscal spending is going to grow, partly funded by savings from social sectors. Germany will start the process of re-inventing itself; this will take time, but 2025 is the year change starts. Europe will start growing closer together forced by a crisis. European markets will benefit. Eurobonds will be a huge topic on back.
Within EM, Brazil’s crisis is getting worse as the deficit under the socialist government is not getting tackled properly. India continues to be the new China, a big part of the global growth machine, but the market itself is too hot and valuations still not in short-term buy territory.
Overall national capitalism is getting more traction. Russell Napier’s view regarding this theme makes sense. This will benefit capex spending globally.
CHINA GENERAL:
China is still struggling with its housing market crisis. Despite new efforts to sell bonds and to stimulate consumption, there will be more social unrest once again. Growth is under pressure - you can lead a horse to water, but.. Xi needs to make sure the population is backing him and his policies. Green tech and especially the car industry are bright spots within the economy. China will even open factories in Europe to produce EV.
Regulation for the tech space prevents that AI & Co are taking off as much as we have seen it doing in the U.S. (How can Xi control AI and let it grow at the same time?!?). Xi’s focus is much more on strategic industries like the chip industries. Xi thinks geopolitically and not so much economically. Anything that needs a liberal view with little regulation (AI & tech in general) to grow is a threat to him. Hence control will remain in place.
Trump’s tariff threats are a further headwind, but China has tools to counter these. A devaluation of the yuan is a powerful way to fight those tariffs. China’s budget deficit is growing and puts further economic pressure and constraints on the CP. All of this will lead again to "the beginning of the end of Xi theme".
Opening China up would mean a huge come-back for China. A matter of time, but not in 2025.
JAPAN REPATRIATION:
The BOJ is forced to raise rates further as the Yen is weakening. Rising yields are starting to hurt the Japanese consumer which will lead to further repatriation of Japanese overseas investments which is a real headwind for risk due to the pure size of Japanese offshore assets. A strengthening Yen is adding to headwinds for global risk in general.
HIDDEN CHAMPION WITH GROWTH TAILWINDS:
The market for private care is growing by 7-8% p.a. in developed markets. Absolute sizes are massive (UK for example estimated GBP40-50bn). Tech is moving in to help to disrupt the space – think about Airbnb and Uber and what they did to their industries. Aging populations are a driver. – Let me know if you are interested to learn about the space. No listed assets yet though.
POTENTIAL BLACK SWANS:
1. Massive speculation also using leverage in crypto space is happening currently. Rising yields and cost of financing are a headwind. A crypto crash can cause forced selling in other asset classes, like tech & especially AI related stocks.
2. AI does not deliver the immediate productivity gains the market is pricing currently. AI related stocks will come under pressure due to sky high valuations and rising yields. Nvidia’s earnings will disappoint (see Apollo’s view on Nvidia as well).
3. While the U.S. has been dealing with the bubble in unlisted assets and the valuation herein, the rest of the world has not really adjusted these yet.
4. The UK to start talking about rejoining the EU. This becomes clearer when the discussions with the EU ultimately don’t lead to the outcome the UK seeks.
COMMODITIES:
1. Peak oil is here. EV a massive headwind for the demand side and demand for plastic cannot replace the drop in demand for fuel. A positive for South Africa and a negative for the likes of Saudi Arabia. Oil will go to $40/barrel in the next 18 months. Risk to this view is an attack on Iran’s nuclear facilities and a further escalation in the ME. That would mean risk off in general though as well.
2. Iron ore supply is growing while demand from China is slowing further. This will force iron ore miners to diversify. M&A is here to stay. Prices under significant pressure.
3. PGM – while the usage of hybrid cars helps the demand side, EVs are winning and the PGM space is under further pressure. The market is oversupplied, and recycling is adding to this.
4. Copper – the electrification theme is the long-term driver. A slowdown of the U.S. economy is a headwind though and copper is trading sideways in a range in 2025. Copper remains a strategic asset.
5. Thermal coal – AI is a massive driver of electricity demand. While renewable energy and nuclear power are the winners to supply this power in the long-term, coal will be part of the energy mix for longer. Price stable, coal stocks remain cash cows.
6. Gold – rising yields are a headwind. The only reason to buy gold at current levels is if you agree with Russell Napier that the global monetary system is radically restructured. – should the U.S. decide to buy bitcoin, a weakening USD will help the narrative to hold gold.
7. Soft commodities – global warming is having further impact on coffee and cocoa production. Prices keep rising as demand is inelastic for these products.
FX VIEW:
While the USD is outperforming now, the U.S. government debt levels are a growing headwind, the USD will weaken in 2025. Countries with solid “balance sheets” will see their currencies outperform. This will also lead to negative yields in Switzerland as the CB will have to cut rates further.
The Euro will be a winner on back of the election outcome in Germany and the European block starting to be more united again (talks of Eurobonds).
The yuan will be a funder as China will devalue its currency as an answer to increased tariffs (plus debt levels are rising further). The peg of the HKD is at risk on back.
Argentina will continue to see its currency gaining due to radical capitalist policies improving the countries outlook.
GBP will weaken further on back of rate cuts, weak economic growth and socialist policies that won’t help to fix the country’s deficit. Only renewed speculation that the UK will rejoin the EU will prevent this outcome.
The yen will remain a funder as Japan’s deficit levels are at ca. 400% debt to GDP, once repatriation and rate hikes come through, the Yen will once again start to have one of its enormous rallies.
The mighty ZAR will strengthen vs the USD this year reflecting self-help and growing confidence on infrastructure and economic growth. FDI is a driver of Rand strength as well. Target end of 2025 is R17 vs the USD. My favourite carry trade for 2025? Long ZAR vs CHF short.
While bitcoin is only a fx alternative, should the U.S. decide to buy bitcoin for a strategic reserve fund, bitcoin will rally further. The U.S. will sell gold to fund this. However, the Fed is opposing this view and it is not likely to change. The risk is the leveraged speculation in the space (see black swans) and the impact on risky assets in general. If the U.S. buys bitcoin though, the message for the Greenback is loud and clear. This will weaken the USD and what it stands for which might weaken the U.S. Treasury market even further. RISK!
BOND YIELD VIEW:
The Fed will only cut more aggressively when something breaks. U.S. inflation is sticky and the Fed’s cutting cycle is ending. The market will start pricing rate hikes in 2025/6. U.S. debt levels are above traditional acceptable levels and yields are rising further on back. The Fed will start yield curve control actively – this is different to QE (same same but different). There is a crowding out effect for corporates and financing costs are rising in USD terms.
This means EM yields are generally rising as well, a headwind for the space. China’s yields remain at lows and represent the economic outlook for now. Asset price inflation will start to kick in, but only for the equity space as the yuan gets devalued.
While Japan’s yields are going to be much higher, Switzerland will have negative yields.
Huge diversion within Europe, due to differences in budget deficits. France a problem. Europe to discuss Eurobonds, Germany will only agree on this with major concessions (this will lead to further integration of the EU) and overall lower yields.
INFLATION VIEW:
While inflation is sticky, deflationary tendencies (dis-inflation) are coming from falling asset prices (house prices in the U.S.), Chinese exporting deflation and layoffs in Europe due to struggling industries like the car industry in Germany.
M&A & CORPORATE FINANCE (POTENTIAL) SPECULATIVE THOUGHTS - food for thought only:
1. The takeover of Multichoice to get approved. Canal+ to list in SA on back.
2. The offer price for Barloworld to get raised to Silchester’s level of R130/share.
3. AngloAmerican to agree to merge with Glencore. Glencore’s coal division to get spun-off and listed on back.
4. European and UK listed companies are targets for U.S. corporates due to valuation and a strong USD. Mondi fits that bill.
5. Exxaro to announce a takeover of manganese assets, a major cost cutting program to be announced as well.
6. SA PGMs to announce M&A to diversify.
7. Potential cap hikes from: Renergen, SA PGMs (especially Sibanye), KAP, Sasol, Metair.
8. Hulamin remains a target.
9. De-listings in SA small caps to continue.
10. We will see two IPO’s in SA in 2025! There is potential even for a third one..
11. Dis-Chem overhang will be bought. Could it be by Shoprite?!
12. Vodacom placement (overhang).
13. Pepkor overhang will be gone in 2025.
14. Reinet to get delisted. No reason to have the holding co discount and the admin of a listing.
15. Sasol to announce a cap hike (see above) and a Sasol 2.0 strategy.
16. Telkom to sell BCX.
17. Naspers & Prosus announce more deals in India in particular, but M&A will pick up in general going forward as the company transforms. Delivery assets will not be a focus going forward and selling these investments will be a key part of the stable.
18. Bidvest to sell Adcock and Adcock getting delisted by the buyer.
19. Woolworths to sell the remaining stake of its Australian operations.
20. Allianz is looking to work with Sanlam (Shiram) in India. The two companies are growing further together, and Sanlam offers the EM exposure and growth potential that Allianz seeks.
DIVIDENDS:
1. PGMs to cut dividends to zero.
2. MTN to cut dividend to pay back USD debt faster.
LUXURY VIEW:
As the Chinese property market is not recovering (negative wealth effect) and U.S. stock market coming under pressure, luxury will remain a funder. Profit warnings will keep coming.
SOUTH AFRICA GENERAL:
South Africa is finally implementing reforms for its infrastructure space. SA’s self-help story is on track, the train left the station in 2024 and is picking up speed slowly but surely. The electricity grid, Transnet and the rail system, water infrastructure will see PPP and growing FDI investments. With regards to the latter, Saudi Arabia, China and the EU countries will be leading. The discussion around prescribed assets will get some momentum, economies globally are discussing these as well. - The PGM space is a huge risk for SA as EV’s take more market share globally and the usage for PGM is getting reduced. Further job cuts to be announced. - SA employment will overall benefit from the growing focus to fix the ailing infrastructure. Consumption will grow on back. – Real GDP will grow by +2.5%. – Unfortunately, loadshedding will start to make a small comeback as growth picks up and electricity supply is an issue. The issues with regards to water have potential for social unrest. By Q4 the market is going to be more concerned about 2026 local elections.
SA RATE VIEW:
We will see the SARB cutting by 25bps before Q2 and a further 25bps in Q2.
SA BANKS:
All about infrastructure growth, lower CLR and an improving economy. ABSA the stock to own. The sector will benefit from economic growth picking up. SA’s self-help story is alive. Foreign funds still don’t own enough of SA, MSCI weights to go up and GDP growth will trigger further asset allocations towards SA Inc. The tide will lift most boats. However, within the sector, Firstrand will remain a funder until there is certainty with regards to fines in the UK. Standardbank has headwinds in especially Africa. Nedbank is steady as she goes. Capitec will keep surprising with regards to added services and its cross-selling ability. - Competition from U.S. banks is growing further globally. The Trump government will reduce regulation and risk taking is getting tailwinds. European bank sector busy with M&A / consolidation.
SA INSURANCE:
Sanlam benefits from growth of its Indian business. OUTsurance a quality play, but valuation makes it a funder. Old Mutual stays a value trap. Momentum’s rally is stalling, the buyback has helped. Discovery a funder after the stock has almost doubled since June 2024 and upside now seems limited, risk that Discovery has to pay the Road Accident Fund.
SA RETAIL:
2-pot in the driver’s seat. SA retail continues to outperform in H1. The going will only get tougher in H2 when the yoy growth rates become harder to beat. Until H2 the sector will do very well. Within the supermarkets, Shoprite is growing market share further. Boxer is delivering promised growth while PIK n Pay is delivering on its ongoing restructuring. Both share prices will be range bound though, show me stories. Woolworths will re-focus on SA and that will kick-start the shares performance. Until Australia is completely sold, the stock is a funder though. Spar will be under pressure as its business model "convenience" is seeing online competition growing. Clicks is going to be a funder due to valuation and slowing growth, its peer Dis-Chem will outperform. There is major risk for the pharmacies from online deliveries of (chronic) medications as well. Less foot traffic on back (see trends in the UK and the U.S. as examples). Foschini is the core long for H1 within the apparel space. Truworths growth slows in the UK and the stock will underperform its apparel peer in SA. Mr. Price delivers, but due to high valuation will underperform Foschini. Exposure (TFG) to Australia a bit of a headwind as Australia’s economy keeps struggling in line with its biggest trading partner, China.
SA PROPERTIES:
All about yields and unfortunately those will rise due to rising yields in the U.S. – Not a good year for the space overall. Those with European exposure will outperform as yields are falling there and are supportive for the sector.
SA HOSPITALS & HEALTHCARE:
Netcare benefiting from its digitalization strategy. This is the one to own in the space in 2025. Aspen will struggle to rally after its disappointing performance in 2024 – tough to find buyers for now.
SA INFRASTRUCTURE & CONSTRUCTION:
There is a boom for the space. Raubex a key holding. Reunert benefiting from investments into green tech and the grid.
SA TELCOS:
Telkom is going to sell BCX. Overhang for Vodacom. MTN with tailwinds from tariff increases and a rallying naira.
SA FOODS:
Lawsuits against the industry in the U.S. (sugar, unhealthy ingredients); there will be risk for valuations on back of these. The takeover speculation for AVI is cooling down. Premier Group will be the shining star in the space.
SA TRANSPORT & INDUSTRIALS:
Steady as they go, nothing really exciting for the likes of Bidvest and Bidcorp.
SA GOLDS:
Harmony with massive capex ramp-up due to copper greenfields. Projects always cost more than predicted and having one in Australia likely means growing regulatory scrutiny and rising cost going forward.
BEST & WORST PERFORMING MAJOR EQUITY MARKET: DAX & Nikkei best. - S&P500 worst.
BEST & WORST PERFORMING ASSET CLASS FOR 2025: Value sectors and inflation linked bonds best. - Bonds, oil & gold worst.
BEST & WORST EM & FRONTIER: Best South Africa, Argentina, Nigeria, Poland (all self-help, plus potential from Ukraine peace talks), Vietnam. – worst Brazil (negative for especially Anheuser), Sri Lanka, Saudi Arabia.
TOP CURRENCY GLOBALLY: Naira, Argentinian peso – worst: Yuan.
BEST SA LISTED LONGS & SHORTS: Long MNP, TFG, SLM, RBX, HDC, ABG, PMR - short HAR, EXX, NPH, SPP, CLS.
LASTLY, OUR ANNUAL SPORTS PREDICTIONS:
1. Liverpool wins the PL.
2. Liverpool wins the Champions League.
3. Landow Norris to win F1.
4. Marc Marques wins the Moto GP.
5. Alcarez wins at least 2 Grand Slams.
6. Australia win the British and Irish Lions tour and start becoming real contenders for the RWC in 2027.
7. Bafana Bafana win Afcon.
8. Boks to win in Dunedin and put an end to the All Black 50 game unbeaten run at Eden Park.
9. Proteas to beat whoever they play for the World Test Championship at Lords'.
***** Many thanks for all your support and partnership in 2024. We wish you a healthy, happy and prosperous 2025. *****