Nedgroup Investments Multi-Manager Economic and Market Review

The table below provides a review of key domestic and international investment indicators for the past quarter, as well as over longer periods.

South African asset classes (in rands)

(Performance over periods to 31 March 2025)

Source: Morningstar

Global asset classes (in dollars)

(Performance over periods to 31 March 2025)

Source: Morningstar

Currencies

(Performance over periods to 31 March 2025)

Source: Morningstar

* Updated annually from 1900, or longest available period

Returns for periods longer than 12 months are annualised.

International market commentary

The first quarter of 2025 proved to be a challenging period for global markets, as escalating trade tensions, shifting monetary policy expectations, and a significant sector rotation weighed on investor sentiment. The S&P 500 posted its sharpest quarterly decline since 2022, while European equities saw a notable outperformance, marking the widest quarterly gap between the STOXX 600 and the S&P 500 in a decade. Elsewhere, concerns over stagflation gained traction, with gold delivering its strongest quarterly return since 1986.

January started on a firm footing, with robust economic data offering some early support. In the U.S., December’s ISM services reading exceeded expectations at 54.0, while nonfarm payrolls surged by 256,000, later revised up to 323,000, the strongest monthly increase since early 2023. The release triggered a bond selloff, with the 10-year Treasury yield briefly rising above 4.80%. However, a softer-than-feared U.S. CPI print later in the month reassured markets that Federal Reserve rate cuts remained on the table, easing some of the pressure on yields.

The positive momentum proved short-lived. Late January saw a sharp correction in U.S. equities, driven by concerns over extended tech valuations following the release of DeepSeek’s AI model. The shift in sentiment deepened in February, as Nvidia’s earnings, while still solid, marked the company’s smallest revenue beat in two years—raising doubts about the sustainability of the "Magnificent 7" rally. By quarter-end, the group had entered bear market territory.

Meanwhile, the political landscape took centre stage. Following President Trump’s inauguration on January 20, the administration announced a sweeping round of tariffs, initially targeting Canada and Mexico with 25% levies, before extending them in March to include higher duties on Chinese goods, steel, and aluminium. The move reignited inflation concerns, with investors growing uneasy about the potential for retaliatory measures. Sentiment soured further after U.S. consumer confidence fell to a multi-year low in March, reinforcing concerns over economic growth and pushing recessionary fears to the forefront.

Across the Atlantic, Europe witnessed a marked policy shift towards increased fiscal spending. The German election on February 23 resulted in a new coalition that proposed major defence spending reforms, while the European Commission announced that defence expenditures would not count towards fiscal deficit limits. This led to a sharp repricing in bond markets, with the German 10-year bund yield experiencing its largest daily jump since reunification. European equities responded positively, with Germany’s DAX posting an 11.3% total return for the quarter.

Given this backdrop, equities were well mixed, with the global index down by -2.1%, with gains in Europe ex UK (+6.2%) and Emerging market (+2.7%) more than offset by declines in the US (-4.6%). In terms of equity styles, growth stocks (-6.8%) underperformed value (+0.2%), and small-cap stocks (-3.9%) lagged large caps (+2.1%). There was also wide variation in sector performance, with Financials (+6.1%) and Energy (+9.4%) being the strongest two sectors, while IT (-11.6%) and Consumer Discretionary (-7.5%) lagged significantly.

Fixed income markets were positive supported by yields falling. Looking at the details, global government bonds (+0.7%) finished the quarter above water, but lagging Investment Grade Credit (+1.8%), Global High Yield (+0.9%) and global emerging market debt (+2.3%).

In the real assets space, global real estate (+1.7%) and global infrastructure (+3.9%) were well bid, due to their sensitivity to fall interest rate. Finally, Commodities (-0.4%) had a strong quarter with Gold (+18.2%) being a clear stand out, supported be geopolitical tensions and purchases from central banks.

Numbers reported in US dollars

Domestic market commentary

Economic growth firmed to 0.6% in the fourth quarter of 2024, benefitting from increased consumer spending and modest improvement in private sector fixed investment. This brings economic growth for 2024 to a paltry 0,6%. The current account narrowed over the fourth quarter, supported by an improved goods trade surplus, which benefitted from higher gold exports. Economic and survey data for the first quarter has thus far been mixed, with weaker survey data reflecting uncertainty related to US-SA tensions a cause for concern. The expulsion of Ebrahim Rasool, South Africa’s ambassador to the US, escalated tensions between the countries. The Department of Transport launched a formal process, including an online platform, to encourage private sector participation. Transnet agreed above inflation wages with unions over the next three years.

Headline inflation for the year to February 2025 printed at 3.2%, steady from the previous month and below market expectations. Core inflation decreased to 3.4%. Housing and utilities still made the most significant contribution to the headline figure, while medical insurance caused upward pressure over the month. Despite an increase over the month, food inflation remains benign at 1.9%. The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) kept the bank’s key lending rate unchanged, in line with expectations. Four members voted in favour hold, while two favoured a cut. The accompanying statement highlighted a contained inflation outlook and outlined the impact of various scenarios such as the loss of AGOA benefits and weaker US growth.

Finance minister, Enoch Godongwana tabled a revised version of the Budget 2025. The commitment to fiscal consolidation remained a priority, however, revenue measures in the form of taxes still featured prominently. The most notable changes included increases in VAT of 0.5% in 2025 and 2026 and no inflationary relief for salary bands, often referred to as bracket creep. With the approval process of the Budget 2025 resting on a meeting of minds between GNU partners, uncertainty remained as an overhang. The FTSE/JSE All Bond Index gained a modest 0.7% over the quarter. The rand demonstrated resilience over the quarter, appreciating by a 3.0% against the weaker US dollar, although lost ground against a stronger Euro, depreciating by 1.5%.

Local equity markets delivered positive results in the first quarter, with the FTSE/JSE All Share gaining 3.6%. Strong quarterly returns from resources (33.7%) were the primary contributor. Precious metals gained 58.5% over Q1, with gold and platinum producers galvanising a strong start to the year. Tencent (19.2%) benefitted from the Chinese technology rally over the quarter, with Naspers and Prosus gaining 8.3% and 12.4% respectively. In contrast, retailers lost ground (-20.3%) as investors digest tax proposals put forward in the Budget. Small cap (-7.1%) and mid-caps (0.1%) stocks underperformed large cap stocks over the quarter. Despite a constructive results season thus far, the property sector had a weak start to the year, declining by 3.5% in the first quarter.

Source: Various, including the Market Review by NPW Investment Research