This period will likely mark the point of maximum pain for global markets. We have seen stocks rally back up subsequently as President Trump began to soften his stance. First pausing reciprocal tariffs for 90 days to allow time for countries to enter negotiations with the U.S. (excluding China), then by exempting consumer electronics from tariffs, and most recently making specific contingencies for the U.S. auto manufacturers. These walk-backs have earned President Trump the nickname, “TACO” – Trump Always Chickens Out.

Ultimately, as the tariff wars play out, it looks more and more like a battle between the two trading heavyweights: U.S. and China. The world is eagerly awaiting any sort of progress in negotiations, with many top officials from both countries suggesting the current impasse is unsustainable.

The question that needs to be answered is how much economic damage has already been done as corporates hold off on investment and consumers stop spending given the prevailing uncertainty?

Current economic data continues to suggest economies are doing fine, notably this data being released is backward looking, pre-tariff related data. We have seen lots of front ordering to get ahead of tariffs and price increases, which could also be flattering the current data.

We are currently in the middle of the 1Q reporting season, with a better than average number of companies (76%) beating earnings expectations by 8.6% compared to the 10-year average beat of 6.9%. Operating margins hit an all-time high in 1Q25 at 12.7%. When 1Q reporting season is all said and done, earnings growth looks set to be >12%, compared to expectations at the end of March for 5% Y/Y growth. Given the uncertainty created by tariffs, a plethora of companies have failed to provide forward outlooks, with 60% of those brave enough to make a forecast guiding negatively. As it stands, currently analysts are expecting EPS growth for 2025 of 9.5%; a slight decline from the 11.9% growth expected at the end of March.

Of some concern, are reports that ship counts from China to the U.S. are down 40% as of the start of May.

This suggests that there could be a shortage of Chinese goods hitting U.S. shelves in the next couple of months. The knock-on effects of this fall-off in Chinese shipments, includes less overtime for Port staff and less cargo for logistics firms to move, resulting in a loss of income for those workers, representing a microcosm of what we can expect throughout the U.S. economy. Given it will take 4 weeks to reestablish these shipping routes once tariffs have been settled, we see a major risk to the spring selling season and Back-to-School in September. 

While no one is brave enough to forecast a recession at this moment, there is a consensus that these Trump-induced tariffs and accompanying uncertainty will have a significant impact on global GDP growth going forward. At its recent spring meetings in Washington, the IMF slashed its outlook for 2025 and 2026; now forecasting U.S. GDP growth of 1.8% and 1.7% for 2025 and 2026 respectively, down from 2.7% and 2.1%. Time will tell how much damage the current policy uncertainty causes the global economy. 

Local section

• The Budget Fiasco
• By the Numbers
• Aspen Pharmacare  

April was a challenging month for global equities, driven by tariff uncertainties and weaker economic data. Positively, the S&P 500 (-0.8%, -5.3% YTD) and Nasdaq (+0.9%, -9.7% YTD) rebounded towards the end of the month, on optimism that trade tensions will de-escalate.

UK and European equities also came under pressure: FTSE 100 (-1.0%, +3.9% YTD) and EU 600 (-1.2%, +3.9% YTD). While the German DAX (+1.5%, +13.0% YTD) continued to outperform, after their new defence and infrastructure spending plan was approved. Harsh tariffs on China weighed on Asian markets: Hang Seng (-4.3%, +10.3% YTD) and Shanghai Composite (-1.7%, -2.2% YTD). 

Palantir (+40.3%) and CrowdStrike (+21.6%) moved higher as they are well positioned in critical cybersecurity and software, making it increasingly valuable amid U.S.-China tensions and a growing tech race. Netflix (+21.4%) reported double-digit revenue growth and better-than-expected earnings growth. They reiterated their full-year guidance and expressed confidence in their long-term ambitions. On the other hand, Starbucks (-18.4%) reported earnings that fell short of expectations, as the company’s turnaround strategy has yet to show signs of improving operating momentum.

Energy companies closed in the red, as oil prices fell following an unexpected agreement by OPEC+ producers to increase supply. This comes amid growing concerns about additional supply coming into a market that is already clouded by an uncertain demand outlook. Namely, APA Corp (-26.1%), Halliburton (-21.9%), BP (-19.7%), Baker Hughes (-19.5%), Diamondback Energy (-17.4%), and Shell (-13.6%).

Global politics dominated April’s narrative, with the local market struggling to take direction as the outlook adjusted on the daily. The global backdrop remained cloudy with Trump’s trade tariffs dragging on equity markets and adding to the concern, the stability of our political leadership appeared to lose its footing. The uncertainty brought volatility to the domestic equity market but surprisingly, the All-Share Index ended the month at all-time highs.

April opened on a cautious note for local investors as anticipation built around President Trump’s impending “Liberation Day” and growing tensions over South Africa’s revised budget took center stage. While global markets braced for Trump’s announcement of a new global tariff structure, South Africa’s Government of National Unity (GNU) was showing signs of strain. The ANC and the DA, the two largest parties in the coalition, clashed over the revised budget—particularly a contentious 0.5% VAT increase, which quickly became a major point of division.

 On April 2nd, the DA voted against the revised budget, prompting last-minute negotiations in which ActionSA and BOSA stepped in to support the ANC. Though the ANC ultimately secured the vote, the DA immediately challenged the VAT hike and the broader fiscal framework in court, casting doubt over the GNU’s stability. Speculation mounted over the coalition’s future as headlines carried stark warnings from ANC members: “You can’t be part of a government whose budget you opposed,” and “I don’t think you can vote against a budget and then tomorrow you want to be part of its implementation”.

Just hours later, President Trump unveiled his long-awaited “Liberation Day” trade tariffs, sending shockwaves through global markets. The wide-ranging tariffs—derided by some analysts as based on “mad math”—included a steep 30% reciprocal tariff on South African goods. Chaos ensued. Market uncertainty surged, and the local bourse was hit hard: the ALSI plummeted 10% in the two days following the announcement, while the Rand sank to around R19.75 against the US dollar.

How big of a hit to GDP?

While the US is not one of South Africa’s largest trading partners, the local automotive sector—part of the broader manufacturing industry—stands as the most vulnerable to the newly imposed tariffs. Although automotive exports account for less than 10% of South Africa’s total exports, economists warned the tariffs could have a modest but measurable drag on GDP growth.

More concerning, however, were growing fears around the potential for further sanctions given the combative stance the US held towards SA. These concerns, combined with rising political uncertainty at home, weighed heavily on investor sentiment. As a result, GDP forecasts were revised downward. Economists cited not only the impact of the tariffs but also the economic risks tied to a possible collapse of the GNU. Standard Bank trimmed its 2025 growth projection by 0.4 percentage points to 1.3%, while the more cautious IMF cut its forecast from 1.5% to 1.0%.

Here Today, Gone Tomorrow

Given mounting global growth concerns and heightened market volatility, one might have expected a more prolonged impact on South African equities. However, the sharp sell-off proved to be short-lived, with both the rand and local equity markets rebounding to pre-tariff levels within days of “Liberation Day”. This swift recovery was in part driven by the 90-day pause on the newly announced US tariffs. Prompting investors to question whether President Trump would maintain his hardline stance or yield to mounting pressure.

On the domestic front, South Africa’s inflation figures continued to ease, down to 2.7% YoY, helped in large part by a decline in global oil prices. This renewed optimism around the potential for interest rate cuts. While the South African Reserve Bank (SARB) may now have room to lower rates, Governor Lesetja Kganyago remains well known for his conservative stance. Although a rate cut would provide much-needed relief to the economy, the broader uncertainty in the macroeconomic environment and the potential inflation pressures that may arise, may ultimately stay the SARB’s hand.

Back to the Drawing Board

Back in the political arena, tensions between the ANC and DA appeared to ease, at least on the surface. While numerous discussions took place behind closed doors, the controversial 0.5% VAT hike remained scheduled for implementation on 1 May. Then, in a surprising turn of events, Finance Minister Enoch Godongwana announced at midnight on 23 April that Treasury had decided to scrap the VAT increase. This decision following extensive consultations with GNU coalition partners and a thorough review of recommendations from parliamentary committees.

The removal of the VAT hike, however, creates a revenue shortfall. Treasury will now need to revise the budget accordingly— be it through new revenue measures or spending cuts, it remains uncertain. It’s worth noting that the economic and political landscape has shifted considerably since the original budget proposal, so changes are widely anticipated. The revised budget is set to be tabled on 21 May 2025.

Adding to the improved sentiment, the DA formally confirmed its commitment to remaining within the GNU, easing fears of a near-term collapse.

Local equity markets responded positively to the calming of political tensions, underscoring the critical role political stability plays in supporting South Africa’s growth prospects. While the latest developments suggest a willingness among GNU partners to collaborate, whether they can truly put aside party agendas for the broader national interest remains an open question. 

A More Defensive Stance

As April draws to a close, SA equity finds itself in the eye of the storm. Markets have largely calmed but the potential impact of global political developments remain on the horizon. We remain in the camp which believes in the SA Inc growth narrative and remain positioned accordingly. However, given the tempering of growth expectations for the coming years we have chosen to take a more defensive stance within the SA Inc realm. As such, we have added a ballast in the form of a fixed income component and will look to increase our exposure to more defensive areas as we move forward.

The JSE All Share Index ended April on a strong note, gaining 3.3% and outperforming global peers, despite a shaky start to the month driven by fears around global tariffs and domestic concerns over the stability of the Government of National Unity (GNU). All major sectors closed the month in positive territory, with property leading the gains at 6.1%, followed by industrials (+4.9%), financials (+2.2%), resources (+1.8%) and general retailers (+1.5%).
 
The property sector stood out, with Sirius Properties surging 12.6% after a trading update pointed to a 12.8% year-on-year increase in rent for its 2025 March financial year, supported by robust organic growth, strategic acquisitions, and continued demand at its business parks. Other notable performers included Redefine and SA Corp, both up 10.5%, along with Attacq (+9.5%) and Vukile (+8.3%).
 
In the industrials sector, Clicks was the top performer, rallying 16.8% after reporting a 13.2% increase in HEPS for 1H25, driven by strong operational execution and improved margins. Management highlighted plans to accelerate store rollouts in the second half, which is expected to further support earnings growth. However, Aspen weighed heavily on the sector, plunging 26.5% in April after disclosing a contractual dispute related to an mRNA manufacturing agreement. The dispute could cut FY25 manufacturing EBITDA by more than 50% compared to FY24 and may result in a R770 million impairment charge on related technology assets.
 
Among financials, Capitec rose 10.9% after delivering impressive FY25 results, with HEPS up 30% year-on-year, driven by strong revenue growth and lower credit losses. The bank continued to report strong customer growth, which continues to drive growth in their value-added services. PSG (+10.2%), Reinet (+9.7%), Outsurance (+9.6%), and Momentum (+8.8%) also contributed to the sector’s gains.
 
In resources, gold counters continued to benefit from a stronger gold price. AngloGold climbed 13% and Harmony gained 10.5%, with AngloGold also announcing the sale of two projects in Côte d’Ivoire and the acquisition of a new project in Guinea. On the downside, Sasol dropped 16.1%, pressured by weaker oil prices and operational headwinds, as highlighted in its 1Q25 production update. Glencore fell 11.6% after reporting a disappointing production update, with lower copper output and a downward revision to its thermal coal production guidance. Other notable laggards included South32 (-14.3%), Tharisa (-12.5%), and Implats (-12.0%).
 
Retailers staged a modest recovery after a bruising sell-off earlier in the month, as global tariff tensions cooled, and domestic political concerns eased following the last-minute scrapping of the VAT hike. Woolworths led the rebound with a 12.9% gain, followed by Mr Price (+7.0%), Pepkor (+5.1%), and TFG (+4.0%).

After yesterday’s close, Aspen Pharma released a worrying SENS detailing a “material contract dispute” involving the manufacturing and technology agreement with a contract manufacturing customer for mRNA products. Aspen cautioned the market of a potential R2bn hit to manufacturing EBITDA an impact which could see FY25 EBITDA from manufacturing come in more than 50% below that of FY24. They further cautioned of a potential R770m impairment hit in respect of related technology which would fall into FY25. Based on our calculations, earnings could potentially see a 30% cut in FY25 from current consensus expectations with potential spillover into subsequent years. The stock is trading significantly lower this morning on the back of this.

Aspen has been on our sell watchlist for some time given our concerns around earnings growth in the coming years, especially given the slow progress in filling existing excess sterile manufacturing capacity. This SENS announcement significantly adds to our concerns, impacting the investment case for the coming years.

With outcomes uncertain and the time it will take to rectify the situation by finding new contracts to replace these lost earnings, Aspen will likely be dead money for some time. We have decided to exit our Aspen positions accordingly, choosing to reinvest the funds in areas presenting more solid earnings prospects.

“We currently live in uncertain times and risks have increased. It’s important not to run away from the risk but to discount it correctly”.

Marc Rowen, CEO of Apollo Global Management         

The quote above sums up our investment philosophy at NVest Securities.  It’s more important than ever to remain vigilant and constantly assess and reassess the operating environment in order to take into consideration the possibility of a multitude of outcomes. Thus, allowing us to make sure we make the best investment decisions. As noted above, the current uncertain environment will have an impact on growth over the next few years, we are adjusting our investment views accordingly and will make the necessary changes in our portfolios that best meet the return objectives of our clients.