By David Crosoer

The global economic landscape is increasingly resembling a complex game of chess, characterised by uncertainty, dynamic moves, and potentially profound consequences. Investors must maintain a clear perspective and anticipate a fluid environment. Recent developments, including the introduction of unprecedented and far-reaching US tariffs alongside South Africa’s domestic challenges, have significantly heightened market volatility. Positive catalysts, whether from South Africa’s Government of National Unity (GNU) or the US administration, now appear less likely in the immediate future.

A Disruptive Gambit: The Impact of US Tariffs

The Trump administration's recent dramatic escalation of trade policies, imposing substantial tariffs on all US trading partners, marks a profound disruption to the global trading system. These tariffs, ranging from a minimum of 10% to as high as 50%, are expected to trigger a significant global supply-side shock, leading to increased consumer prices within the US. Economists now see a higher probability of a US recession coupled with increased inflation.

Analysis from our Partnership Asset Manager Capital Group, investment manager of the PPS Global Equity Fund, suggests that the scale and nature of these tariffs indicate that forthcoming negotiations will be complex and potentially signify a fundamental shift away from the open world trade system. They highlight the uncertainty surrounding the reactions of other nations and the historical difficulty in reversing tariffs once implemented. This policy shift is anticipated to lead to greater market volatility and a higher risk of economic policy errors.

Further insights from 36ONE Asset Management, investment manager of the PPS Managed fund, underscore the severity of the US tariff announcement, describing it as exceeding most pessimistic expectations. Their analysis points to the simplistic and indiscriminate nature of the tariff calculation, which doesn't differentiate between allies and adversaries. 36ONE believes these tariffs are unlikely to be easily reversed and will likely persist until significant economic damage compels a reconsideration by the US administration. This raises concerns about an increased risk of a global economic slowdown.

Domestic Headwinds: The GNU and Economic Reform

Domestically, South Africa's GNU continues to face challenges in delivering decisive economic reforms. The recent budget presented an opportunity to set the country on a stronger growth trajectory, but as 36ONE points out, political dynamics have hindered progress. Concerns remain about the DA's ability to leverage its position to drive meaningful economic change, with potential scenarios ranging from a "slow bleed" of ineffective governance to a remote risk of a more severe economic downturn depending on future political alignments. The possibility of substantial reform and higher GDP growth for South Africa appears limited in the near term.

How are we positioned?

The global outlook has weakened following harsher-than-expected U.S. tariffs, raising risks of slower growth, higher inflation, and potential recessions in export-reliant economies. Equity markets have sold off broadly, while U.S. Treasuries rallied as investors seek safety.

Entering the year and moving into the second quarter, our portfolio positioning reflected a cautious and measured approach.

Entering the year and moving into the second quarter, our portfolio positioning reflected a cautious and measured approach.

South African Bonds - We held an underweight position, driven by concerns that the February budget would fail to deliver meaningful expenditure cuts or support sustainable long-term economic growth.
South African Equities - During periods of market strength in Q1, we tactically reduced our exposure, shifting our SA equity allocation from the upper end of our overweight range toward the midpoint.
Global Equities and Bonds - While global equity valuations remained elevated, we adopted a neutral stance, maintaining cautious optimism given Trump’s pro-business deregulation policies despite growing tariff risks. To enhance overall portfolio resilience, we increased our exposure to global bonds during recent periods of market weakness.
Navigating Uncertainty: A Call for Calm and Discipline
Given the unpredictability stemming from both the unprecedented global trade escalation and South Africa’s domestic policy inertia, a strategically defensive and tactically alert stance remains appropriate. For investors who entered this period with prudent positioning and a diversified portfolio, the core advice is to remain calm and avoid panic-driven adjustments.
While short-term volatility in the South African equity market is likely, any further weakness could potentially offer selective tactical buying opportunities. Active global asset managers, well-positioned to navigate and capitalise upon heightened volatility and uncertainty, remain a valuable resource in this environment.
The current juncture, marked by profound global and local dynamics, demands careful analysis, strategic foresight, and disciplined positioning. In times of considerable volatility and uncertainty, maintaining a diversified, strategically adaptable approach is the optimal way to navigate the unpredictable twists and turns ahead, ensuring portfolios remain robust despite these unprecedented economic and geopolitical shifts.

David as Chief Investment Officer is responsible for the overall investment framework at PPS Investments and works closely with the Head of Research to ensure that the investment framework is implemented effectively. David is determined to continue to evolve the investment framework to deliver outstanding outcomes to members. David is especially excited about more purposeful and sustainable strategies, and how best to align this with the long-term interests of both current and future members. David has been a key member of the investment team at PPS Investments since 2008.