The last quarter under review has seen significant financial and political turbulence. Despite this, the JSE All Share Index demonstrated resilience, closing the February 2025 quarter at 85942.
In South Africa, we have seen an unprecedented delay in the ability of the new Government of National Unity (GNU) to present a unified budget, which resulted in the Budget Speech being delayed until the 12 March 2025. The cause of the delay was that the ANC proposed an increase in VAT from 15% to 17%, which resulted in push-back from other political parties and led to a stalemate, and the postponement of the Budget Speech. The positive take from this is that it highlights the fact that the ANC can no longer implement policy on a whim.
Currently, South Africa has the world’s most bloated government service, low economic growth, the highest unemployment rate in the world, mounting corruption and rapidly deteriorating infrastructure, which only adds to the burden on our economy. This is evidenced by the fact that the country’s mounting 75% debt to GDP ratio is unsustainable.
This has led to significant resistance from a number of sectors, including from within SARS. South Africans have one of the highest tax burdens globally and previous tax increases have failed to generate the anticipated revenue, with corporate taxes remaining uncompetitive on a global scale. The general consensus among industry leaders is that taxation cannot resolve South Africa’s fiscal crisis and that state structural reform and private sector collaboration is necessary to drive economic recovery.
The GNU has a lot of work ahead to find common ground and unity in their dealings with each other, however we are hopeful that they will find ways to compromise and will reach a consensus in order to deliver on their proposed reforms in an effort to improve economic and social conditions in South Africa.
Globally, AI-driven stocks maintain momentum whilst stock markets produce mixed results as broader markets face challenges from geopolitical instability and inflation concerns. Investors find themselves in a complex investment environment as a result of evolving global policies, political shifts and economic uncertainty.
Under President Trump, we have seen a new era of protectionist policies being introduced as the US implemented aggressive trade policies that have sent shock-waves through global markets. These trade wars are expected to drive inflation higher as a consequence of increased borrowing costs and immigration restrictions which will likely lead to wage inflation. Due to this, inflation is likely to remain above the US Federal Reserve’s 2% target and interest rates may also remain higher than expected. Given that the US is the largest global economy, it remains to be seen how this affects global markets.
In other economies, Europe and the UK continue to struggle with economic growth and political uncertainty. However, the European exchanges have fared better than their American counterparts, given the uncertainty in the US. We are optimistic that with the input of world leaders, the war between Russia and Ukraine could soon come to an end, which would lead to better economic conditions in Europe and see global trade reopening to these areas.
Below is an indication of how the Global Bourses have fared over the last few quarters:
The below graph tracks the performance of the Rand against the US Dollar over an eight-year period:
The below graph tracks the performance of the JSE All Share Index over an eight-year period:
On the compliance front, we anticipate the Conduct of Financial Institutions Act [CoFI Act] to be promulgated, which aims to streamline regulations in the financial services sector to ensure financial institutions treat consumers fairly, emphasizing the fair conduct principle. South Africa still remains on the grey list, thus requiring significantly enhanced due diligence for international transactions, in an effort to combat money laundering and terrorist financing. Whilst necessary, these new compliance requirements continue to increase the administrative burden for businesses but the positive aspect is that this oversight extends to government departments.
As we enter the next financial quarter, we remind ourselves that turbulent times require patience amid uncertainty, as market fluctuations are inevitable, but manageable. Navigating the uncertainty around South Africa’s fiscal crossroads, global markets and the US’s economic and trade policies will require fortitude from investors as we block out the noise and remain focused on long-term investment strategies with diversified portfolios. As we have seen historically, times of uncertainty provide opportunity for investment into high quality stocks, often at lower prices, and our focus on both South African and offshore stocks provides us with a balanced approach to achieve our long-term investment goals.