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On the 2nd of April 2025 Donald Trump announced reciprocal tariffs on the whole world starting at a 10% baseline […]

Oh dear, seems like the politicians are living in their own little world again if we look at what our Minister of Finance proposed in the Budget Speech and the games Donald Trump is playing with his tariff policies.

If we look at what was proposed in the 2025 Budget Speech, we see the following:

• Instead of reducing the size of a very costly and impotent government, the Minister of Finance has decided to squeeze the three million taxpayers paying 90% of income tax in South Africa a little bit more by not increasing the tax brackets or medical aid credits. On top of that, he has done nothing about the extremely wasteful and corrupt expenditure side of the budget but has preferred to increase VAT by 0.5% this year and another 0.5% next year. By doing that, he has effectively told all consumers, rich and poor, that they have to bail out the government for its inability to create an economy that can increase employment and stimulate growth.
• The proposed budget will most likely not be passed by parliament with the DA, MK and EFF all opposing an increase in VAT.
• As with everything, there is a breaking point as to how far you can bend the taxpayers before they find an alternative way of doing things and we shall have to see if that point has just been breached. At the end of the day, the government will just have to bite the bullet by slashing the expenditure side of the budget and making the country more business-friendly by lowering taxes; liberating the labour market; reducing regulations; and replacing government-run sectors of the market with the private sector.

On the investment side of things we have seen equity prices drop in recent weeks, due to the uncertainty created by the trade tariffs introduced by Donald Trump. The question you have to ask yourself, is whether this creates a buying opportunity, or should you sell your equities? To answer that question we have to consider the following:

Firstly, did you fill your cash buckets towards the end of last year as per the proposals made? If the answer is yes, then you are not affected by the fall in equity prices because you will only need to sell your equity holdings seven or so years from now, when prices will have recovered.

Secondly, do you think the US will go into a recession? If the answer is yes, then you can expect shares to go down further and buying now is not on the cards, but if you believe like many people out there that the current pain is a politically self-inflicted wound that can be reversed by a mere shift in policy, then you have to start buying this dip because there are many top notch companies trading at very fair valuations that will be worth a lot more five years from now.

Personally, I believe that there are many world-class companies trading 20% below their recent all-time highs, that will be worth a lot more in five years’ time and I want to start owning them. Owing to the uncertain potential outcomes over the shorter term, rushing into anything is not a good idea but it just seems unlikely that Donald Trump would like to go into the November 2026 mid-term elections with the US being in a recession; and the Fed can lower interest rates quite a lot which could help the economy avoid a recession. If I have to choose between the SA budget and the US tariff wars, I would choose the latter because I think it will be easier to fix.

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Why is Donald Trump such a big fan of tariffs, and what exactly do they accomplish? A tariff is a tax on imported goods and services. Tariffs are used to raise revenue for the government and to protect domestic industries from foreign competition. President Trump is running the United States like a business and believes that he can make the US great again by doing the following: protect domestic industries by raising tariffs on imports; lower taxes on the US consumer and companies; and prevent illegal immigration. He believes that a lot of US taxpayer money is wasted on foreign aid programmes, as well as inefficient initiatives like diversity, equity and inclusion (DEI). He also believes that membership of international organizations like the World Health Organization, UN Human Rights Council, and even NATO, offers no benefits to the US and that these organisations are merely taking financial advantage of the US taxpayers.

So what does a tariff war look like? Well, it goes a bit like this: I want to protect my country’s steel industry and motivate companies to produce steel domestically, so I levy a 25% import tax on any steel being imported from a specific country, let’s say China. So if you are an American company importing steel, you suddenly have to pay 25% more for your imports. You can either find an alternative supplier in the US; or you can raise the price of your products to maintain your profit margin (which will increase inflation); or you can keep your price the same and lower your profit margin (which will impact your share price). China will then reciprocate by levying a 25% tariff on their imports from the US, such as agricultural products. The Chinese company importing such products will have the same choices as the US steel importer. The end result in both countries is a potential increase in inflation due to higher prices; companies going out of business because they are very price sensitive; and even a recession because consumers are being stretched too far. The longer these tariff wars continue, the more casualties there will be, just like in a conventional war.

The question is, can the US President unilaterally impose tariffs? The answer is yes. While the US Constitution grants the power to levy tariffs on goods to Congress, Congress has delegated some of that power to the Executive Branch over time. This law states that the President can raise tariffs on imports that pose a threat to national security. Section 232 allows the President to implement these tariffs without the approval of Congress, following an investigation by the Department of Commerce.

The problem for Donald Trump is that he has also promised to lower inflation and reduce the national debt. Tariffs will most likely increase inflation so he plans to counter this by lowering taxes, making companies more efficient, and using the revenues from the tariffs to subsidize some sectors that will be impacted. Can the US President lower taxes? Tax laws are made by representatives in Congress and the Senate. Congress puts forth a bill, they ratify it, and then it goes to the Senate. If the bill passes the House and Senate, it will then head to the President’s desk to be signed into law or vetoed. The President, however, does have tremendous powers with the executive order capability and can introduce some tax changes. The House and Senate can undo an executive order the next day if they wish to do so, but currently the Republicans control the White House, the Congress and the Senate, so yes, Donald can lower taxes.

As with any other war, whether conventional, currency, psychological, etc., both sides will suffer but the one holding the best cards will eventually be the winner. President Donald Trump doesn’t think like a diplomat, he sees everything as a business negotiation. This creates a lot of uncertainty, which translates into investment volatility. We have seen investment markets gyrate substantially over the last week or so, leaving us all feeling a bit queasy, but eventually Donald will settle on something that is palatable and the economic powerhouse that is the USA will continue on its winning ways. Below a graph of what happened with shares during Trump’s first term and now.

Let us take a moment to celebrate some of the things happening in SA today, starting with the postponement of the budget presentation. At first glance you could think that this is a negative but it turns out that the Minister of Finance wanted to push through a 2% increase in the VAT rate to fund things like an above-inflation increase in public sector wages and social grants. If the ANC still had a 51% majority, this would have happened but the miracle of the GNU stopped them in their tracks. This is a win for SA and a sign of true democracy where things have to be agreed upon and not just bullied through. Make no mistake, they will get the money somewhere else and the lion’s share will come from taxing the people with a job and/or assets.

Another reason to celebrate our country is the performance of our equity market and our currency. There has been a lot of political mud-slinging by the USA against South Africa and we will probably feel the effects thereof in due course, but for now the JSE All Share index is performing well. It has to be highlighted that although the SA index is outperforming the US markets, the sectors driving this outperformance has got very little to do with our internal economy, but rather with external sources. The stellar performers are gold-mining companies like Goldfields, up 46% year to date; and Naspers, up 16.5% year to date due to its large holdings in the Chinese tech company Tencent. Gold is at record levels and our mining companies benefit from this run in the metal. Just to put things in perspective: the Resources sector contributed nothing in 2024 so it is playing catchup; and the star performers of 2024, like banks and retailers, are giving back some of their outperformance.

We can also take a moment to give a slow clap for the rand. It has actually strengthened against the dollar, pound and euro so far this year. We should note that a fair value for the rand is closer to R17/$ but international investors demand quite a large insurance premium when it comes to investing in the African uncertainty. Staying on the topic of purchasing power, did you know that you can buy a Big Mac burger for 54% cheaper in SA than the USA? So living in South Africa can be like the Cape Town weather: when the south-easter picks up you have to batten down the hatches and hold on to your hat because there will be some damage, but when it stops blowing, there is nothing like the joy of watching the sun setting over the Atlantic on a balmy summer evening or sipping a Chenin among the vines of the Stellenbosch mountains.

We have managed to get through the first month of 2025 with mostly green on our investment screens. In South Africa we see shares up around 2% for the month and interest rates have come down 0.25% to 7.50%. SA inflation is around 3% with Gold up around 6.5% year to date. The US also got some upside on their equities with the S&P500 up around 3% for January. We did see some jitters going through the technology sector in the US when a Chinese company called DeepSeek unveiled a new AI large language model (LLM) that can do the same as the current US LLMs for a fraction of the cost.

On the political side we see things moving fast in the US, with Donald Trump following through on his campaign promises of deporting illegal immigrants, freezing federal expenditure and terminating all Diversity, Equity and Inclusion (DEI) practices in the federal government.

In South Africa we see Cyril Ramaphosa signing into law the new Expropriation Bill. This was done against the wishes of other members of the GNU but we all knew this was coming. Farmers are running for the hills with a personal friend selling her farm on Friday – to a group of Arabs who are buying up the Karoo. They intend to raise cattle and export 100% to Saudi, using only expat labour. This is a lose-lose for South Africans.

For those of you who are thinking of emigrating, don’t bother. It is just too expensive. SA is a wonderful place to live as long as you can detach yourself from goods and services provided by the government. As Paul from Vestact mentioned in their blog on Friday: pay for the things you can, such as private healthcare, schooling, solar, security; drill a borehole; use your own 4×4 transportation; and the most important of all, stay away from investing in the biggest state asset of all, the rand!

Donald Trump was sworn in as the 47th president of the United States on the 20th of January. There are many people who feel an intense dislike for the man, but there is one thing you cannot take away from him and that is the fact that he is a man of action and creates a lot of activity around him. As an investor you might want to take his inaugural speech and imagine someone else delivering it, perhaps the more likable Barack Obama; or you may really take a flight of fancy and imagine our own president giving such a powerful speech. Would you change your mind about the message that was given in such an instance?

Like it or not, for the next four years Donald Trump will have an enormous impact on your investments. There are some people who say that the next five years will be the most critical period for your investment portfolio because from where we are now, nobody can predict what our world is going to be like after 2030, due to exponential advancements in technology. Perhaps we should look at some of the more controversial things president Trump said or did and decide whether it is good or bad for our investments.

The attendance of company CEOs
Sitting right behind Donald Trump were some of the most powerful CEOs in the world: Mark Zuckerberg (Meta), Jeff Bezos (Amazon and Washington Post), Tim Cook of Apple and Sundar Pichai of Google had all accepted invitations to attend the event. This is a very clear indication that the new administration will be pro-business, as long as it is American business. This will support any investments you have in American companies.

Declaring war against illegal immigration and criminal networks
Trump declared a national emergency on the Mexican border and designated the cartels as “foreign terrorist organisations”. Trump also said he would use the “full and immense power of the federal and state law enforcement” to combat criminal gangs in the US. Imagine Cyril Ramaphosa doing this. It is estimated that there are up to five million undocumented migrants in South Africa at the moment and that the construction mafia is extorting billions of rands from infrastructure projects; taking us right back to the days of the Guptas.

Terminating the gender debate and equity employment issues
Trump declared that there would henceforth be “only two genders: male and female” in the US. He vowed to make this an official policy of his government, and promised to sign an executive order that would roll back protections for transgender people and terminate diversity, equity and inclusion (DEI) programmes within the federal government. Trump promised that the US government would be colour-blind and merit-based. We can compare the DEI programmes to our own BEE regulations. Under the Biden administration, very incompetent people were put in very important positions with disastrous consequences. As South Africans, this is probably the one policy change we urgently need to embrace. Over the last thirty years, our government has destroyed most of our SOEs; like ESKOM, Rand Water, Transnet, SAA, Post Office, SABC, Road Accident Fund and many more; simply by using colour instead of merit as criterion for appointments.

Climate, energy and health
Trump has signed off on withdrawing the US from the Paris Climate Accord – the landmark international deal to limit rising global temperatures. Trump has declared a “national energy emergency” and promised to fill up US oil reserves again. Trump has halted the Green New Deal, a series of Biden measures aimed at boosting green jobs, regulating the fossil fuel industry and limiting pollution. Trump also signed an executive order to begin the process of withdrawing the US from the UN’s World Health Organization (WHO). This marks the second time Trump has ordered the US be pulled out of the WHO, after Biden re-entered it. He has been critical of how the Geneva-based institution handled Covid-19. Both these actions will have an impact on your investments in the much talked-about ESG ( Environmental, Social and Governance) initiatives. Some years ago, a group of activists (including a little girl called Greta Thunberg) started a drive to force companies to replace profitable business practice with something that would be better for the environment and social well-being, irrespective of cost to the company. Although the intensions of the drive seemed to be sound, the practical outcomes were not. We have seen many companies scale down their ESG drives; and investments in funds with an ESG theme are underperforming non-ESG funds.

If we ignore Donald Trump’s not universally liked personality and just look at what the next four years will be offering to you as an investor, it is clear that investing in US companies will be crucial. The focus will be on business excellence: if you can do the job, you will be rewarded; but if you are there for any other reason, you will be sidelined. We are in a race where the future beyond 2030 is unclear. We have to make the next five years count.

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Market performance in 2025 will depend on two things: economic growth and inflation. The dominant player in the investment world is still the USA and investing in any other country or region will increase your risk. The best outcome for us as investors will be if the US economy continues to grow at around 3% and inflation comes down to around 2%. This will enable companies to grow their earnings, supporting their elevated share prices, and allow the federal reserve to lower interest rates. The biggest risks for us as investors is the current high level of US government debt and any material weakness in the dollar. Looking at some specifics, we see the following:

1. The 10-year Treasury yield spiked up to 4.77% after the most recent employment figures, the highest since November 2023. The market is sending a clear message to the Fed: Stop cutting interest rates.

2. The market is now pricing-in a single rate cut in all of 2025: a 25 bps move down to 4.00-4.25% by year end.

3. US average hourly earnings has moved up from $31.42 in 2021 to $35.69 in 2024. That is double the targeted inflation rate in the US.

4. The debt in the US is a problem that makes the economy vulnerable towards dollar weakness.

5. “We will not allow inflation expectations to drift upward,” stated Jerome Powell after cutting rates last year. So we can be sure they will stop rate-cutting or even increase them again if inflation goes up again.

6. The US is outperforming and there are good reasons why.

7. Outside of the Mag7 there are 493 large-cap companies where fair valuations still exist. Perhaps an equal weighted S&P500 will carry less valuation risk in 2025.

8. With Trump the rules have changed and less regulation, lower taxes, adoption of Bitcoin and more tariffs will necessitate investment portfolios to change. Risk of persistent higher inflation and a growing debt burden is a
reality, even if the new efficiency department of Elon Musk (DOGE) can cut $1 trillion expenditure. With AI, thousands of jobs will be made redundant but that will take years to impact on the near state of full employment
currently. AI will also make business more efficient which will save costs and lower inflation.

9. The US economy is still strong, resulting in company earnings matching the valuations. This should continue on average for the next few years.

Higher interest rates will stall the benefit of capital gains from bonds. It will also reduce the earnings of companies, resulting in the falling or stagnation of share prices. On the positive side, you get a good yield on US bonds with higher interest rates; and the new Trump policies, coupled with the introduction of AI, can support US equities, thereby mitigating some of the negative effects of higher interest rates. SA shares are still cheap, but see it as a value play due to the high risk attached to the SA political environment. The rand will always be volatile and any true, long- lasting strength against the $ is very doubtful.

We should all guard against perpetual negative sentiment publicized by the media. When the war in the Ukraine started two years ago, every media outlet warned us about the impending collapse of Europe due to shortages of natural gas, famine and other disasters. Now, two years later, shares in the US is 50% higher. There are other apocalyptic predictions that have been hanging around for years, like China invading Taiwan, etc., but history has proven that even if these things do come to pass, the actual impact on good quality investments is much lower than prophesied by the media, and usually the recovery is much faster than expected.

We have seen two very good years in equity markets and it will be prudent to manage your expectations for this year. Even if growth in the US remains robust and inflation comes down, having another 20%-plus year is very unlikely.

The year 2024 was an interesting one and in many ways divergent. If we ignore the facts for a moment and just look at the sentiment, we will probably get the feeling that conservative thinking is replacing liberal thinking with regard to politics, and that Artificial Intelligence is starting to take a hold in our daily lives, benefitting early-adopter companies.

During 2024 more than a hundred countries around the world held elections, and almost every incumbent party lost vote share. This was the first time this had happened since 1905. If we look at South Africa, where the voter base is predominantly based on ideology, the ANC lost so many votes that it had to form a government of national unity. In France, where the rights of illegal immigrants seemed to be more important to the government than the rights of citizens, the right-wing parties gave president Macron a black eye. But the most decisive and most important upset in the world of politics was the crushing defeat of the Democrats in the USA by Donald Trump.

As with all other things in life, politics seems to go too far in one direction before there is a turnaround and then it goes too far in the opposite direction. There will always be a tug-of-war between protecting the rights of the vulnerable, and supporting the enterprises of companies and people who make our world a better place to live in. It is clear that citizens everywhere want their governments to turn the focus back to productivity and excellence and temper their focus on philosophical and emotive causes.

This drive toward excellence will have a dramatic impact on your investments and it started with the rolling-out of Artificial Intelligence (AI). If we look at the top-performing stocks in the world last year, it is noticeable that most of them had a front-row seat when it came to AI. Look at Nvidia, Google, Amazon, Tesla, Apple, Broadcom, Oracle, Palantir and many more. The top seven companies in the S&P500 contributed around 33% of the performance of that benchmark.

With this new political mindset of how to get one step ahead of the competition, we have seen a broad-based acceptance of crypto currencies, especially Bitcoin. The price of Bitcoin in January 2024 was $43 800. It passed the $100 000 mark in December 2024 and this move was largely a result of Donald Trump’s view of crypto. We have also seen a big shake-out of the drive by companies to develop electric cars. Old-school companies like Ford and General Motors failed in their attempts to develop these cars and new-age companies like Tesla, and BYD (China) succeeded. The next big thing will be Robo-taxis and companies like Waymo are already leading the pack with over 22 million driverless miles since March 2019.

Technological development is accelerating and as investors we have to be invested in the opportunities they create. Long gone are the days where we can just choose a big holding company like Remgro or a big mining company like BHP and hope for the cycle to favour us. We have to be bolder and accept that we are entering a minefield where many of these new-generation companies will blow up, but that it is also the place where the future lies.

Looking back at 2024, we have to say thank you for the good returns. If we look at the performance chart, we see a lot of green on the screen.

Unfortunately, the rand couldn’t hold up against the strong US$ and weakened by 3% against the greenback.

What will happen in 2025? We will discuss this in more detail in the next blog, but for now I think we should just manage our expectations a little.

Bitcoin is an enigma. Most Baby Boomers thought it would be a shooting star, burning brightly initially but fading away quite rapidly. Most Generation Z’s thought it was the best thing since sliced bread, although they don’t really understand that analogy. As things stand today, bitcoin is close to $90 000, up 100% for the year to date. It has gained 33% in the last month alone, owing to the election of Donald Trump, who is pro-crypto. You may not know this, but the government of the United States is one of the largest bitcoin holders with over $20 billion’s worth.

There is a palpable irony here. The biggest risk to bitcoin was government regulation, and the biggest drawcard for bitcoin was decentralization. As things stand today, the grey suits were punched in their sensitive area by the video-gaming rebels. A lot of professional money managers are capitulating and buying bitcoin for their clients due to constant pressure from them. Regulating bitcoin has made it more liquid and accessible with all of the largest fund managers offering ETF’s for retail investors. In most cases, early buyers of bitcoin stumbled into the investment by accident. Somebody told them about this “new currency” and they thought it sounded cool so they bought one. As it happened, the tail started wagging the dog and soon their bitcoin investment was worth more than all of their other worldly possessions.

We have to accept that sometimes something that makes no sense; has no fundamental value in the traditional sense; and can cause some serious harm due to its volatile nature; has become mainstream. Perhaps bitcoin can be regarded as the cult of the financial instrument universe.

If you are interested in politics, you would have seen all the hype about the US election over the last few months. The polls predicted a very close race between Donald Trump and Kamala Harris, but it ended up being a landslide win for Trump.

If you are interested in investment returns, you would have seen the equity market reaction in the US on Wednesday last week. The S&P500, Nasdaq and Russel 2000 raced to all-time highs, buoyed by the expectation that Mr Trump would reduce both corporate taxes and the regulations on American corporations.

As of last week Friday, the Nasdaq was up 28% year to date and 41% over 12 months. That is a good rebound after a poor 2022. Mr Trump is not very pro rest of the world and will focus on making America the best country in the world. This will include putting big tariffs on any imports into America from countries like China and Mexico; making it difficult for people wanting to enter the US; and favouring any company that produces its goods inside the US borders. The backlash will be higher inflation and most probably an increase in the US debt. This will result in interest rates not coming down as fast as we all hoped for and negatively affecting our bond holdings.

But, as before, we cannot predict what will actually happen in the future and there will most likely be something else that upsets the apple cart. This is a time to re-evaluate your investment portfolio. Make sure that you have enough liquidity to see you through any volatility in equity markets. Make sure that you do not become too conservative and hoard cash in anticipation of a downward market correction and make sure that you are well-diversified between different asset classes, geographies and currencies.