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President-Elect Donald Trump, JD Vance and Elon Musk

31 Jan 2025

Q&A: 2025 and beyond – changing governments, changing tech, changing risks

From ‘American Exceptionalism’ to the durability of the AI-driven tech boom and the shifts in global politics, our experts give their view on what the year ahead could hold.


The year has barely started and already it’s promising to be anything but boring. How will the world deal with Donald Trump, a man on a mission, in the White House? How will politics and geopolitics around the world affect the outlook? Does the AI-driven boom have legs? Will inflation re-emerge and if so, how will markets react?

None of these are easy questions to answer in today’s uncertain world, but our panel has taken on the task with some thoughtful and incisive answers. While there’s broad agreement on many topics, they also offer a good blend of views that follow the consensus in some areas and are contrarian in others. At the same time, the opinions here should not be read as a “house view” but rather a snapshot of the different views that go into the discussions about strategy, asset allocation and stock selection.

(On that score, we highlight that many of those who contributed their answers in this article are members of Investec’s Global Investment Strategy Group (GISG) and asset allocation teams, where their broad range of ideas and opinions contribute to the overall risk score, commentary and asset allocations of our different committees. The result is a well-distilled process that guides the way we manage your money. You can read more about our positioning in our latest Global Investment View, which we suggest reading alongside this article.)

Our panel this year is made up of the following people:

  • Awongiwe Booi (fixed income analyst)
  • Annelise Peers (chief investment officer, Investec Switzerland)
  • Barry Shamley (portfolio manager and head of the ESG Committee)
  • Chris Holdsworth (chief investment strategist)
  • Neil Urmson (wealth manager)
  • Osagyefo Mazwai (investment strategist)
  • Richard Cardo (portfolio manager responsible for the Global Leaders portfolio)

Key:

  • AB = Awongiwe Booi
  • AP = Annelise Peers
  • BS = Barry Shamley
  • CH = Chris Holdsworth
  • NU = Neil Urmson
  • OM = Osagyefo Mazwai
  • RC = Richard Cardo
     

Q&A January 2025

  • Let’s kick off with politics – there were plenty of new governments elected all over the world and likely to be a few more this year. What’s your overall view of the impact of the big shifts in global politics?

    NU: It will be a difficult year as politics looks inwards in general and global institutions are challenged. Trump will get some quick wins upfront but then I think it gets ugly.

    BS: The outcomes on average indicate a move to the right. While there was a strong leaning to the left before this, somewhere in the centre would have been preferable but perhaps a strong right is needed to start this rebalance.

    OM: The main result of the big shifts in the political arena is an increasingly changeable economic and foreign policy environment, which can give rise to increased volatility in terms of policy certainty. Europe stands out as a particularly volatile environment with instability likely in France, Italy and Germany, as well as in the UK.

    AP: This change in governments follows the public anger about the increase in prices across the board around the world. We saw prices increase following the Covid-19 pandemic and living standards were negatively affected. Inflation has been the big enemy of governments.

    AB: It seems as if world politics is taking a turn to the right, especially in developed markets. We will likely see more protectionist policies (changes in immigration policies, tariff wars, changes in global trade negotiations, etc). We could also see more wars (by proxy), which will also likely negatively affect international relations and public policy, with money being diverted from domestic welfare to the tech-industrial complex. Finally, we could see a rise in the influence of oligarchs on regulations and policies (Elon Musk, etc).

    RC: The US and Europe have lurched to the right, the UK to the left, and South Africa ostensibly more to the middle. Geopolitical tensions, trade and fiscal policy uncertainties have all ratcheted up in an increasingly multipolar, inward-looking global environment as governments try to manage their countries’ interests and social welfare while remaining competitive. The gulf between the democratic/liberal/capitalist way and the autocratic/populist/non-western world is as wide as ever. This all makes for a volatile mix and a more difficult environment for investing.

    CH: It’s a clear signal that the electorate in several countries has been unhappy with the status quo. Incumbents lost ground across the board. It’s not clear that new governments will have the solution to the problems that got them elected but we can expect them to try, with the associated uncertainty and volatility.

Chris Holdsworth
Chris Holdsworth, Chief Investment Strategist

It’s not clear that new governments will have the solution to the problems that got them elected but we can expect them to try, with the associated uncertainty and volatility.

  • Perhaps the most consequential is the US. How will President Donald Trump shape markets and the world economy this year?

    AP: Hopefully, Trump can facilitate a peace deal between Russia and Ukraine and in the Middle East, but tensions with China will probably escalate.

    Trump will have to deliver on election promises to ensure that the Republicans win again in four years. He therefore must keep inflation low. We saw the result of inflation on governments last year.

    However, his policies of cutting taxes and increasing tariffs will likely cause further inflation. Furthermore, the budget deficit is expensive to fund now at current interest rates. The $3.1 trillion deficit cost the US government $345bn in fiscal year 2020 and for fiscal year 2024, the $1.8 trillion deficit cost $882bn in net interest. Corporate taxation only contributed $530bn to receipts.

    AB: The long-term effect of his policies I think will only be felt once he leaves office. However, in the short term, tax cuts could keep the dollar strong, therefore affecting emerging market currency and bond volatility. The tariff war with China could lead to a slowdown in global trade volumes and in the short term could cause technical inflation. We are also likely to see increased spending, which will affect the fiscal situation and further cause inflation, so we could hear more noise from the bond vigilantes, with an impact on bond valuations.

    RC: Team Trump is anti-immigration, and wants to implement tariffs, make the US government more efficient (through the Department of Government Efficiency, or DOGE), cut taxes, and de-regulate. But the timing and magnitude of these policies are uncertain, with this overhang driving a wide potential bull-bear range for equity markets. I think that the actual Trump presidency policies may be tamer than he campaigned on although a key risk is that policy shifts end up being more extreme. Broadly speaking, the US stock market has done better than Europe and the rest of the world because the US offers better economic growth, and its companies better economic profits. This has seen the US attract more capital and support the argument for US exceptionalism. The two key factors favouring the US economy and market are innovation (technology, R&D) and labour productivity – Trump knows this. Ultimately Trump’s so-called ‘MAGAnomics’ will be about being pro-American business, achieving a stronger US economy, and a continued stock market advance.

    NU: I could write a 100-page essay on this one – I think it starts off OK and ends badly. The market has had two years of 20% plus gains, so he needs to perform given the high valuations. In general, I think his policies will be inflationary.

    BS: While it has been heralded as an ideal outcome for US markets, I am more circumspect. Certainly, the starting valuation is not in his favour. I struggle to see how his policies, if implemented as expressed in his campaign, won’t be more inflationary, and while on the face of it, the US economy seems robust there are areas of the market that would be negatively impacted by a higher rates trajectory outlook, such as commercial real estate.

    OM: Trump has given clear signals to the market about what he intends to do from an economic and foreign policy perspective. However, it is unlikely that he will achieve the full scope of all his policy proposals given their impact on inflation and the economy. His Republican colleagues in Congress are also acutely aware that they need to defend their strong position in two years’ time at the mid-term elections.

    CH: An 'America first' policy may well alienate some of the US’s closest allies. Tariffs are unlikely to spur global growth and the short-term surge in prices will give central banks further reason not to cut quickly.  Given the current fiscal position of the US, there is little to no room for further unfunded tax cuts. Trump faces some tough trade-offs – it is quite different from 2016. With this comes uncertainty - he may not yet have fully shaped his thoughts on how to tackle these issues.

Richard Cardo
Richard Cardo, Portfolio Manager responsible for the Global Leaders portfolio

Broadly speaking, the US stock market has done better than Europe and the rest of the world because the US offers better economic growth, and its companies better economic profits.

  • Tech entrepreneur Elon Musk also looms large on the (global) political stage. How do you see his influence evolving, particularly his relationship with Trump?

    AB: It can go one of two ways: either we see a scenario where billionaires start to have bigger control in regulations by lobbying for laws that benefit corporate US to the potential detriment of the US economy (livelihood of the middle class), or they initially have a good relationship but then fall out because of ego. Then we could potentially see retaliation from Trump (eg a change in regulations that could affect Tesla as a company) or you could see Musk align himself with other countries (Germany, UK, etc) and retaliate against Trump (causing further political relations to deteriorate). Their different views on China will play a role here I think.

    AP: Musk and Trump may fall out over the year. Elon Musk is pushing his agenda – getting rid of Tesla competitors via Trump tariffs on Chinese electric vehicles. Likely, Trump’s ego will not accommodate Musk’s ego in the long run. However, for the moment Trump is facilitating the oligopoly of Musk, Zuckerberg and Bezos. We will have to wait for the next Roosevelt to come along to break up this oligopoly – as a recent interview of Doris Kearns Goodwin (the presidential biographer) by Edward Luce from the Financial Times revealed.

    Luce suggested that “an era that does echo today is when the Carnegies, Rockefellers and Vanderbilts – the Elon Musks, Mark Zuckerbergs and Jeff Bezoses of their age – were redefining what it meant to be wealthy. Goodwin liked the comparison: ‘The robber barons looked in the mirror and thought they were God too,’ she says. The late 19th century was a time of dizzying technological upheaval, canyon-wide gaps between rich and poor, and resentment by small-town America of the increasingly “sinful” immigrant-teeming cities, she says. Then along comes Teddy Roosevelt, one of Goodwin’s heroes (she calls them ‘my guys’). Roosevelt ushers in the progressive era, busts the trusts, offers a square deal to every American and uses government to tame the vast power of the private combines.”

    BS: While the friendship is currently strong, I would be surprised if this persisted given their narcissistic personalities. They are tag teaming well, but we may have already crossed the line in terms of conflict of interest.

    OM: Donald Trump and Elon Musk both have high levels of conviction around their ideas. It is not clear to what extent the two will clash on some issues. It will be interesting to see how China's policy plays out given Tesla’s production facilities in China. That is but one example where there may be no meeting of the minds. That said, Elon Musk is focused on government efficiency as opposed to influencing policy.

    RC: He’s already stirring the political pot in the UK. He can be a bit of a loose cannon and some of his more right-wing political musings could be troubling. But there is no doubt he’s entrepreneurial, and a shrewd businessman. And he has the social media platform to influence. Trump will use him where he can best add value, and I see that mainly in the drive to make government more efficient (the DOGE).

    CH: It will be very difficult to prevent him from landing up in a position where he has conflicting interests. I'm not sure he would be willing to put his assets in a blind trust, so presumably, his role in government will be somewhat less ambitious than has been signalled up until now.

    NU: Musk seems to me to be getting a little “over his skis” and runs the risk of underestimating his remarks and making an error.

  • What’s your view on the various geopolitical hot spots around the world (Middle East, Ukraine, Sudan, etc)? What will it take to de-escalate the conflicts? Or could we see new hotspots emerging?

    OM: Geopolitical tensions don’t seem to be receding in any convincing fashion. The recent deal struck in Israel seems to be a move in the right direction, however, the permanence of the deal remains under question. Trump appears to be taking a hard line on the conflict which may lead to some forms of de-escalation.

    AP: Under Trump, it is possible to see peace in Ukraine and the Middle East. Sudan unfortunately is not easy to resolve as these remain proxy wars for Russia and Iran and the area will remain unstable.

    We should keep an eye on Taiwan and Chinese action here.

    AB: Both the Ukraine/Russia and Middle East conflicts could end with Trump coming in. I don’t think Trump likes war (even though he talks about it a lot). War deviates him from the real goals he wants to execute and also leaves less money to spend.

    Possible future conflicts to watch:

    • US vs Mexico and US vs Panama – tariffs will be the main tool though. We will likely see tariff wars and further banning of critical mineral exports (antimonopoly probes for US tech giants)
    • Myanmar – the recent coup and Beijing’s involvement could lead to more political turmoil
    • Korean Peninsula – Kim’s mutual pact with Moscow could lead to further escalation (and possible US involvement). We could see an escalation in the threat of nuclear war.

    RC: Geopolitical tensions have ramped up and are set to remain elevated. If Trump is going to be more inward (US) looking, then his appetite to actively play a role as leader and protector when it comes to the ‘free world’ could wane, unless it suits his interests. He’s already said that he will stop the Russia / Ukraine war so let’s see how that plays out. Despite the recent more positive news of hostages’ release and some de-escalation in conflict, the Middle East looks set to remain a tinderbox for the foreseeable future.

    CH: There is always a risk of new hotspots, but hopefully they have little influence on global trade or the global economy. Taiwan is the most obvious risk.

    BS: I get the sense that many are de-escalating but that may be more of a hope than a reality.

    NU: I see a scenario where the Middle East gets sorted out and there is a high road if Iran is out of the picture (its nuclear capabilities are removed or it moderates its views). I don’t yet see how the Ukraine war ends in the short term but I’m keeping an open mind.

Awongiwe Booi
Awongiwe Booi, Fixed Income Analyst

I don’t think Trump likes war (even though he talks about it a lot). War deviates him from the real goals he wants to execute and also leaves less money to spend.

  • Inflation seemed to be tamed in 2024. What’s your outlook for inflation and rates this year in the leading economies?

    RC: Inflation has been cooling down, albeit the key metrics remain above long-term central bank targets. The Covid-19 distortions have unwound for goods inflation, which has now bottomed out, but services inflation is still high. The risk may be to the upside given that energy looks to be heading higher, especially natural gas which is far more important for inflation than gasoline, and Trump’s proposed tariffs and anti-immigration policies on the face of it appear more inflationary. With unemployment low, jobs growth robust, consumer spending strong, and the US economy doing relatively well, I cannot see why the Fed would be in a rush to cut rates much further, say maybe by another 50bps (half percentage point) at the most. And I cannot see US rates going up this year. There’s more scope for further rate cuts in Europe where economic growth is anaemic, and inflation is lower. In aggregate, the current rates momentum is still a tailwind for equity markets.

    BS: At this point, the outlook for US inflation seems to be less clear than it was last year. Trump’s policies have thrown a spanner in the works. In most geographies, I believe the demand side will not be problematic, but supply-side inflation could be a threat on the back of weaker currencies and higher energy prices.

    OM: The risks of runaway or out-of-control inflation appear relatively muted in the absence of a serious escalation in geopolitical conflict. Supply chains are relatively stable and the movement of goods is unaffected. However, inflation in developed markets is not yet at the 2% level, with some upside risks, particularly in the US. Europe remains at higher risk in terms of energy costs due to the sanctions against Russian oil. However, the European Central Bank remains in a position to cut interest rates given the weak demand environment.

    AP: Inflation might be sticky above 2% for the first half of the year, but I expect it will fall below 2% for the year-end. Tariffs could give us a big deflationary shock toward the back end of 2025 as this is a consumption tax.

    AB: Tariffs (if exercised to the degree Trump has stated) will cause technical inflation. This will further steepen the US Treasury curve and make US debt even more expensive (and this could lead to more uproar from bond vigilantes). Inflation uncertainty will also mean the futures market will price in more uncertainty around Fed policy. The Fed technically should not cut if inflation is not at 2% (and when unemployment is not above 5%). Therefore, this will likely make the Fed pause its cutting cycle.

    CH: I expect it will continue to be sticky. Getting it to 2%, the 'last mile' as it were, may be some way off.

    NU: The risk of stagflation could increase, leading to rates remaining high in the US as inflation remains sticky.

Annelise Peers
Annelise Peers, Chief Investment Officer, Investec Switzerland

Inflation might be sticky above 2% for the first half of the year, but I expect it will fall below 2% for the year-end.

  • China continued to disappoint in 2024 and now faces the prospect of further US tariffs. How can China navigate its challenges in 2025?

    CH: I think the odds of a rebound in China are greater than widely expected. The stimulus has been deployed, total social finance is up year-on-year, house prices are declining by the smallest amount since 2023 and money supply growth has been accelerating. Recent commodity price moves further indicate an acceleration in Chinese growth. In addition, the Chinese authorities have much further scope for deploying stimulus given low inflation and yields.

    AP: The Chinese need to significantly upgrade their stimulus programmes. The credit and fiscal impulses have bottomed, but it is a complex problem as the continued deflation from the property bubble is not easy to counter and will be difficult to stimulate sufficiently without reinflating the bubble.

    The piecemeal approach up till now has been disappointing and will need big projects, spending and changes to policy to turn this around. The US will not allow the renminbi to devalue against the US dollar so in my view this, combined with higher tariffs on Chinese goods, will have a big negative impact on Chinese growth, with little room to manoeuvre.

    NU: I think its problems have some way to go and China is just going to have to go through the process of dealing with a material property bust. I suspect China will continue to try to export its way out of trouble and build relationships away from the US to manage the fallout from Trump. It could be weak for a while yet.

    BS: China has room to cut interest rates and provide more impactful fiscal stimulus. While it has been quite conservative now and is playing a longer game, China may need to ratchet up its response to weak domestic consumption if tariffs start impacting exports.

    OM: China will have to wait to see the extent to which the US implements tariffs. However, the US is not a self-sufficient economy and is reliant on various goods from China. Therefore, the US does not hold all the cards and retaliatory measures by China could be as economically damaging, which in a sense is a case of mutually assured destruction. The US will likely follow a similar route to Trump’s previous presidency by placing tariffs on specific products.

    AB: Instead of focusing on external developments, the domestic economy is more critical for China's outlook in 2025. Specifically, whether the housing market is in the early stages of stabilisation. Further government stimulus will be important this year.

  • Europe also faces several challenges, including still low growth and a general shift to populist governments. What’s your outlook for the leading economies in Europe and the region as a whole?

    AP: Europe has been struggling with sub-par growth since the post-Covid-19 rebound, and higher energy prices and the tight monetary policy stance have not helped. However, Europe’s equity valuations are cheap, and interest rates have a lot more room to decline from current levels. It is also possible that we will see a green bond programme out of Europe this year, which will address energy sufficiency, transport, defence and cyber safety – which bring significant fiscal spending out of Europe. When that happens, I will be bullish on Europe as this will stimulate growth and it will be the first concerted fiscal package out of Europe.

    OM: There are various issues facing the European economy. It’s largely a manufacturing economy and the rise in energy costs due to the Ukraine conflict brought to the fore the vulnerability of the European economy. Consumer confidence is low, and manufacturing remains muted too. The economy is set to benefit from continued interest rate cuts by the ECB, however, inflation outcomes will materially influence how it moves from now on, with exogenous and geopolitical risks being pronounced.

    AB: I see the likelihood of new government coalitions within certain countries, which will result in hung parliaments and less execution of strategies etc (e.g. France). I also see the potential for bigger budget deficits and a potential change in regulatory requirements that will be anti-green and protectionist.

    BS: It’s difficult to have a view on the region, but some positives are starting to show in terms of valuation. Europe is coming off a low base and there is potential to continue to have accommodative monetary policy for the time being.

    RC: US economic growth and macro fundamentals are likely to be ahead of Europe again this year, although European GDP growth in aggregate should pick up, to over 1%. Of the larger European economies, Germany and France should be the relative laggards, with the UK and Spain the relative leaders. European growth should be boosted by US demand and dollar moves as well as ongoing resilience in its labour market and ongoing real wage catchup. However, significant fiscal drags, a less productive labour force, less innovation and R&D spending, the potential impact of US tariffs, and over-exposure to relatively weak growth in China are all headwinds. In contrast to other regions, slower growth will likely open the door to more monetary easing in Europe.

    CH: Leading indicators suggest that European growth is due to slow but if China does reaccelerate, we can expect a rebound in Europe too.

  • Big tech soared to new heights in 2024, both in price and valuation. Is this sustainable? Does the artificial intelligence (AI) boom still have legs?

    RC: The Magnificent Seven technology stocks generated a return of more than twice the overall US market’s return last year and contributed 55% of the total market’s return, mainly driven by gains in semiconductor stocks. The earnings growth, profit margin and return metrics of tech counters have far outstripped all else. These stocks now make up around 35% of the overall US market cap.

    I would expect to see more of a broadening out in earnings growth across other equity sectors this year and hence the gap between tech stocks and the wider market to narrow – tech stocks cannot keep growing at the same rates off an ever-increasing base.  At first flush, the Magnificent Six (excluding Tesla because it distorts things) appear expensive trading on a 12-month forward PE of more than 30 times earnings (vs. the S&P 500 of about 22 times and the equal-weighted S&P 500 of about 17 times). However, given expected corporate profit growth to come over the next few years and the amount of free cash flow being generated despite increased capex on AI, valuation metrics further out – whether it’s PE, price/earnings-to-growth, or price to free cash flow – all look much more palatable. Today’s tech businesses are generally of far better quality and profitability and trade on cheaper valuations than in previous episodes of tech exuberance.

    Going forward, investors will become more critical of a company’s ability to show a positive and growing return on investment from increased capex spend on AI. AI spend has grown to the size of the entire US defence budget in less than five years and it’s still growing. The Magnificent Seven alone are expected to spend more than $500bn in capex and R&D over the next year, which represents around 25% of sales. This figure does not include adjacent spending categories such as other semiconductor designers and manufacturers, data centres, heating, ventilation, and air conditioning (HVAC), utilities/energy, and old and emerging service providers (e.g., financials, retail).  If these are included, the full-blown AI spending could be over $1 trillion. I think that tech and particularly select AI software enablers and adopters should do well this year. The risk is that we see higher bond yields and interest rates this year (not my view), which would cause tech to struggle.

    NU: It may have legs but is not a safe place to be invested unless you diversify into beneficiaries of AI and venture and away from the Magnificent Seven.

    BS: My view is that AI is following similar patterns to what we have seen in the past in terms of the Gartner hype cycle. While I do believe the technology will increase productivity, its impact may have been overestimated in terms of valuations. Much money has been spent and we now need to see if companies will be able to achieve a satisfactory return on their investment.

    AP: The AI boom and tech did well in 2024, and we have seen some productivity gains out of the large language models, but if it leads to such a productivity push then why are we not seeing the same productivity in Europe and the rest of the world, given that Microsoft is widely used? Therefore, on this part of AI productivity, I would like to see more evidence of it helping us now.

    In the future, further development will contribute to growth, but I think a pause at current levels is warranted until we see further evidence.

    The tech companies have done well as large capex has been done following the CHIPS Act, but buying Nvidia chips and stockpiling them in warehouses is not something that excites me right now. The medical breakthroughs and a few other areas of AI are exciting, but it is still playing out of a very narrow space of the economy.

    CH: It will likely take some time to establish what the return on AI investment will be.  In the interim, continuing investment in the space may be hampered by higher-than-expected interest rates. There is reason for caution, even though AI developments may well ultimately usher in a new age of faster productivity growth.

  • Based on the above, what are the implications for the different asset classes – equities, bonds, currencies and commodities?

    CH: US equities offer little to no margin of safety in my view. Any risk to the earnings outlook is likely to be met with a fairly sharp derating. Fixed income screens as cheap, especially after the recent pullback. The US dollar is strong, but I suspect unsustainably so. As the Bank of Japan hikes, and China reaccelerates, I would expect to see some dollar weakness. This could be offset by punitive tariffs that strengthen the dollar but also weaken the US economy.

    BS: Volatility has been low and ‘American exceptionalism’ has become a standard phrase in our day-to-day investment conversations. While I am not certain of how much further this overwhelming preference for US investments will extend, I do know that it’s very much priced into valuations. The key to successful investments is often to do something different for so long as the proposed alternative is sensible in terms of valuation and outlook. China and commodities are very much out of favour, and they may be an interesting consideration at this point.

    AP: Capital market assumptions for the next 10 years show that the current estimate of US equity large caps’ expected returns is now below 5% nominal (4.7% in US dollars) and 3% (2.6%) in real terms, the lowest estimate seen since 2017 and the lowest in back-tested models since January 2004 (4.6%). With the US 10-year Treasury trading at around 4.65%, it is difficult for me to be overweight US large caps versus Treasuries, European and emerging market equities for the next 10 years. However, I expect volatility this year in markets and if Trump pushes unfunded tax breaks, we could see the US equity market outperform again until markets start worrying about the inflationary impact thereof. The dollar is overvalued but could remain so until US growth starts to cool. For commodities in general to do well we will need to see a rebound in the rest of the world growth versus the US.

    NU: It could be a difficult year for all – a recession scare may see some room for bonds to do OK from these levels, while commodities depend on China.

    RC: An environment of moderate economic growth and inflation and a tailwind from rate easing should be good for both risk (eg. equities) and risk-free assets. Yes, equity valuations have re-rated and are stretched particularly in the US, as is investor positioning. But it is rare to see significant multiple compression or de-rating in periods of above-average US earnings growth (which we expect) and accommodative monetary policy. Rising bond yields, with a US long-bond yield sustainably above 5% would be the risk to this view, as would a materially stronger dollar from here (though it’s difficult to see from this point). I expect commodity prices to remain relatively flat this year. My preference is to own some gold as an insurance hedge and then industrial metals like copper, where there are ongoing supply issues and a tight market.

  • Which are the markets/geographies to watch in 2025? Developed or emerging markets?

    OM: Emerging markets are better positioned for a cyclical recovery due to inflation being within central banks’ target ranges in most emerging markets, except Brazil. Argentina’s inflation seems to be under control too. Central banks will be in a better position to start cutting interest rates. That said, fiscal issues may constrain the relative attractiveness of investing in emerging markets.

    AP: I prefer developed markets, seeing that, for instance, Europe can do capex through fiscal packages and that will lead to higher growth. Emerging markets need China to rebound and the US dollar to weaken – we will have to wait and see if China is willing to throw enough stimulus at the economy to counter the strong renminbi and US tariffs.

    RC: As 2025 progresses, we could see more of a convergence trade, given relative positioning, valuations, and price divergences across regions. The rest of the world (ex-UK) is cheap compared to the US stock market and earnings should have more recovery potential off a muted base (US earnings and margins are at all-time highs). However, we first need more clarity on global trade and geopolitics. In the meantime, a lack of a quality substitute for US equities remains the reality. So, US exceptionalism and a stronger-for-longer dollar could see the US market continuing to outperform other regions, in particular emerging markets, at least for the first half of the year. Within Europe, the UK market looks too cheap, and it should be more shielded than other countries concerning any trade headwind.

    CH: Emerging markets. If the US dollar does weaken and China reaccelerates that would provide a potent mix of supporting factors for emerging markets.

Osagyefo Mazwai
Osagyefo Mazwai, Investment Strategist

Emerging markets are better positioned for a cyclical recovery due to inflation being within central banks’ target ranges in most emerging markets

  • What are the sectors to watch? Look at cyclicals vs defensives, growth vs value, offshore vs local, industrials vs resources, bonds vs equities, tech, etc.

    RC: I like the outlook for global financials and banks. Deregulation, tax cuts, increased merger and acquisition activity, and capital market activity, and the expected interest rate environment are all tailwinds. And bank stocks look cheap, with a decent yield underpin especially when considering current capital requirements (which should ease). Select global industrial names that can take advantage of the US reshoring theme, select technology stocks, and certain high-quality cyclical names should do well.

    OM: I prefer local over global. There are many risks to US equity and fixed-income performance, at least until we have a better sense of Trump’s policies. The local market appears to be attractive. A cyclical recovery in the South African economy, coupled with the continuation of structural reform and potentially a structural recovery bodes well for both South African equities and bonds. ‘SA Inc’ and interest rate-sensitive sectors should be a good place to be this year. A stronger rand may impact rand hedge sectors negatively. Our miners could benefit from better energy security and the incremental improvement at Transnet. There is a convincing South African growth story.

    CH: Cyclicals outside of the US. Also, US Treasuries and healthcare, as demographic issues become more apparent.

    NU: Value over growth – I think local may not do as well as the consensus view.

    BS: It’s a cloudy outlook now and I would prefer a balance. A lot can happen in a year and diversification makes sense across all geographies and asset classes.

  • The crypto market seems to be hot again, thanks in part to the prospect of light-touch regulation by the Trump administration. Is this a bubble or are the fundamentals sound?

    BS: It’s very difficult to talk about fundamentals when there are no future cash flows to discount but there is certainly a growing acceptance of crypto as an alternative asset class. Changing regulation and easier accessibility via exchange-traded funds could provide continued tailwinds, albeit with high volatility.

    AP: Crypto to me is an alternative to gold as a hedge – however it remains volatile and should only make up 1% to 2% of a client’s portfolio as a speculative trade.

    NU: I don’t know – but I am not a buyer of bitcoin at these prices or any. I may be wrong though and I accept that risk.

Barry Shamley
Barry Shamley, Portfolio Manager and head of the ESG Committee

It’s difficult to talk about fundamentals when there are no future cash flows to discount but there is certainly a growing acceptance of crypto as an alternative asset class.

  • What are some of the other trends/themes we should be keeping an eye on in 2025 that could have an impact on investment? (eg. technology, healthcare, demographics, climate, etc)

    BS: Infrastructure could be interesting. There is a considerable amount that needs to be spent on the energy transition and on energy supply for data centres. There has been insufficient investment in the grid in many developed economies and bottlenecks may occur if this investment doesn’t occur. While the market has become less interested in renewable energy (more favourable valuations elsewhere) we can be certain that it will be a substantial part of any new generation capacity given its cost-effectiveness, even without incentives. Other potential infrastructure demand could result from the rebuilding of Ukrainian cities (if a ceasefire were to occur) and rebuilding post the California wildfires.

    AB: People could take climate change more seriously, with more regulations being put in place. We could see more consumer resistance to big corporates and corporate leaders (Luigi Mangione’s actions are an extreme example).  Also, watch for any market backtracking on AI valuations.

    NU: Convergence of the tech platforms is real, and I think at some stage we will get a chance to buy assets. Healthcare could do better this year. Overall, I would say you shouldn’t give away your optionality as we may see more volatility this year. Maybe accumulate emerging market assets as opportunities arise.

    RC: Even if there is a thawing in various geopolitical trigger points, select plays within security and defence should do well. AI and broader technological innovation (for example automation, humanoid robots, and multi-earning agents or platforms), the democratisation of private markets, and longevity (for example obesity, and smart chemotherapy) are all longer-term structural growth themes that I would want some exposure to.

    CH: Deregulation, climate, demographics, changes in the way education is supplied.

  • What are some of the “wild card” events (we could call them black or grey swans) that could shake up markets in 2025 – both good and bad?

    AP: China could surprise the market with a massive stimulus package, while not worrying about the current debt in the system. The Chinese government could also nationalise property to make it more affordable for younger people to buy – this could be a way of tackling the demographic problem since many young people see that as a reason not to have children.

    A US peace deal with Iran is unlikely but it would have a big impact on the geopolitical landscape.

    Coordinated currency market intervention to weaken the US dollar – with pressure from the Trump administration.

    NU: The return of quantitative easing by central banks to cap long bond rates.

    BS: A good black swan would be a strong China stimulus to jumpstart its economy.

    I know I am tempting fate here, but it feels as if we have had our fill of black swans over the past few years.

    AB: A virus outbreak (Covid 2.0?). A Trump and Xi Alliance emerges – if Trump has to choose between immigration and tariffs, he will likely choose immigration as that was the central election issue. This opens another door for Trump and Xi to negotiate and compromise. A massive cyberattack that sees a sizeable piece of the world’s IT infrastructure being hit, either to earn a ransom or to make money off a short on global markets. A market crash caused by botnets and perhaps taking advantage of lax AI regulatory oversight by the Trump administration. The comeback of nuclear as countries abandon non-proliferation treaties – this could include the likes of South Korea, Japan and Taiwan.

SA specific questions:

  • What does all the above imply for the South African economy and local markets?

    BS: The stronger US dollar, economic data and oil prices have all created a tougher environment in the short term. While our inflation rate has come back nicely and created room for additional interest rate cuts, the changes above could limit the Reserve Bank’s response. Valuations aren’t as compelling as they were ahead of our elections, but I believe we still have a considerable self-help opportunity and along with good stock selection this could result in solid returns.

    AB: The world situation does create uncertainty about South African inflation expectations. Also, uncertainty about the oil price (and the potential for oil to increase above US$85/barrel) raises further concern about both inflation and the outlook for the rand.

    NU: I think we may be too optimistic, and structural issues may not be fully resolved.

    CH: The economy can grow for South African-specific reasons. Electricity production has stabilised and there have been improvements in rail and port operations. Business confidence has increased since the formation of the GNU. Consumer spending will likely be strong, boosted by withdrawals under the two-pot system. Inflation is low and inflation expectations are now at the middle of the Reserve Bank’s target. Despite these tailwinds, the current expectation is that the economy will grow by around 1.7% this year. The bar is low.

  • South Africa emerged out of 2024 with a Government of National Unity (GNU), which generally received the thumbs up from markets. Can the GNU hold, and can it continue with the policy action needed to boost growth?

    OM: The GNU seems to be holding. The various political parties consistently indicate that the GNU is intact on various platforms. The members of the GNU are acutely aware of the risks that will arise in the case of a collapse. This would have material implications for our bond market and currency and negatively impact the lives of the people of South Africa, who can hold the political parties accountable as soon as next year’s local government elections.

    AB: Yes, we have seen in the last six to eight months that there has been initial buy-in from the political parties and despite some tensions, green shoots of structural reform are emerging with a stronger cluster of economic ministers, while we have also seen more private participation, which will be good for reform and growth.

    What are the factors that could lead to the failure of the GNU?

    • One major factor is the presence of deep-rooted ideological differences between coalition partners. Conflicting views on key policy issues can make it difficult to reach a consensus, leading to political gridlock or internal strife.
    • The lack of clear and comprehensive agreements at the outset of a coalition. Without a well-defined roadmap outlining priorities, decision-making processes, and conflict-resolution mechanisms, disagreements can easily arise and escalate, causing instability.
    • Internal power struggles and conflicts among leaders can also destabilise a coalition. When individual parties prioritise their own interests over the collective good, it can lead to infighting, legislative challenges, and ultimately, the downfall of the government.
    • External pressures, such as economic downturns or security threats, can further strain a coalition. Disagreements on how to handle such crises can quickly intensify, leading to a breakdown of trust and cooperation
    • Low levels of public trust and dissatisfaction with a coalition's policies can undermine its authority. When citizens perceive the government as divided or ineffective, it can lead to social unrest and protests, ultimately causing the government to fail.

    NU: I’m not sure it has the buy-in to make the difference it has the potential to – but I’m holding thumbs and not giving up on the idea yet.

    BS: It should hold but will require the ANC to honour the agreements made for the formation of the GNU. National Health Insurance could provide a test of this commitment, but I believe in the end the key players understand the alternative will be devastating for everyone including themselves.

    CH: Hopefully. It is in South Africa's interest for it to persist, so hopefully any differences can be resolved amicably. The chance of the GNU falling apart is probably the key investment risk in South Africa.

  • Electricity seemed to come right in 2024. Do you see much headway being made in addressing South Africa’s other infrastructure and public sector issues (transport, water, municipalities, etc)?

    NU: Johannesburg, as the largest city, is the real issue and needs to get better, followed by the second-tier cities.

    AB: Yes, Operation Vulindlela means there should be fewer bottlenecks for reform to be implemented efficiently. And with both National Treasury and Government having buy-in it gives it more credibility and a chance to play out well.

    CH: Yes, but maybe not immediately. We have already seen a gradual improvement in the performance of the rail network and at the ports.

    BS: Yes, I think we are seeing improving outcomes in public-private partnerships and I expect this trend to continue, albeit with speedbumps.

  • What other factors are likely to shape South African markets in 2025?

    AB: Maintenance of big SOEs and the management of municipal debt are key. Other things to watch are the Chinese recovery story (impact on commodities), safety and security, and fiscal consolidation.

    CH: Concern around the next ANC elective conference. Risks to global trade from tariff policies and China’s rebound are other factors to watch.

    NU: China and new energy initiatives’ effect on raw material pricing – we need another commodity cycle to buy time. The rest of the world is not waiting and with some countries turning inwards, laggards will be left behind and Trump is not coming to the rescue – we need to compete in the big world now.

    BS: The most important for all emerging markets is the US dollar. While the expectation in the short term is for a stronger dollar, this is not expected to persist given the deteriorating fiscal outlook, high valuations and reduced preference for US Treasuries by many emerging market central banks. While growth is the key driving force in favour of the dollar it needs to be balanced with the above.

    OM: Business confidence is the key factor that will influence South African markets in 2025.

About the author

Patrick Lawlor

Patrick Lawlor

Editor

Patrick writes and edits content for Investec Wealth & Investment, and Corporate and Institutional Banking, including editing the Daily View, Monthly View, and One Magazine - an online publication for Investec's Wealth clients. Patrick was a financial journalist for many years for publications such as Financial Mail, Finweek, and Business Report. He holds a BA and a PDM (Bus.Admin.) both from Wits University.

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