The reaction by global stock markets was brutal, with most global indexes dropping by more than 5%. However, these movements look to be discounting several retaliatory actions from trading partners and a draconian outlook. It is reminiscent of the initial market reaction in March 2020 when the world first began shutting down due to COVID-19. 

While the tariffs announced on Wednesday evening will have a stagflationary impact on the global economy, placing central banks under pressure. From our perspective as managers of money, it is important to stay vigilant and identify opportunities that always arise in circumstances such as these when emotions run high.

An example of this may be Nike, which is down 13% as of this writing; equivalent to a $12.7bln loss in market cap – almost three times the operating income generated from its U.S. operations.

Liza will walk us through the tariffs and the impact on markets in more detail later in this note.

What a start to 2025 we have had, and we are barely 25% through the year. In our 2025 Global Outlook, we noted that the U.S. Exceptionalism theme would remain the golden thread that would continue to drive superior U.S. returns for the most part of 2025. This would be primarily driven by stronger growth momentum in the U.S., aided by pending fiscal stimulus and deregulation to be initiated by the new Trump-led government. We acknowledged that a shift away from U.S. exceptionalism is possible, given that regions like Europe, the UK and China are trading at low valuations with investor sentiment at historic lows but a catalyst for this shift was missing.

Donald Trump’s second term in office has so far been characterised by uncertainty given on-again, off-again tariffs threats. There is nothing stock markets hate more than uncertainty. The U.S. policy uncertainty index jumped to all-time highs.

This uncertainty has filtered into business pausing investment decisions and depressing consumer sentiment.

Tech stocks that have driven much of the upside performance in the last 18 months, began to give up some of their gains. The U.S. Dollar also weakened.

Additionally, Trump’s hostility towards Europe particularly regarding defence spending contributions to NATO, unilateral peace talks with Russia, and a very public dressing down of the Ukrainian president Zelenskyy, caused European leaders to acknowledge that their once trusted ally can no longer be counted on. The new German government were quick to react and voted to increase government spending on military and infrastructure spending by €1trillion. This fiscal boost to Germany’s softening economy along with the expectation for other European countries to follow suit provided the catalyst needed for investors to move investment funds out of the U.S. into undervalued European and UK equities. Looking at 1Q25 performance, European and UK indexes outperformed the S&P 500 by a significant margin.

On the local front, getting the GNU to agree on a fiscal budget has proven to be problematic with parties divided over the potential VAT increase. While the situation remains fluid, with the survival of the GNU facing its toughest test yet. If DA makes the decision to move back into opposition, it will be viewed as a set back and have an impact on the SA economy and local market going forward.

In this month’s edition, Anda dives into the detail of the budget, the various permutations impacting outcomes and the DA’s future.

On the portfolio management front, we recently exited our position in Motus as we questioned management’s credibility. Khonie runs us through the investment thesis and what led us to sell our holdings.

Local section

• By the Numbers
• Inaugural GNU Budget: To Budge(t) or Not to Budge(t)
• Motus: Management Credibility Comes into Question

March saw a continuation of developed markets outperform the U.S. – S&P 500 (-5.8%, -4.6% YTD), Nasdaq (-8.2%, -10.4% YTD). Worries about tariffs and the U.S. economy, shifted investors away from “U.S. exceptionalism”. Airlines, Delta (-27.1%) and United Airlines (-25.5%), moved lower after cutting guidance on growing economic uncertainty.

On the other hand, Huntington Ingalls (+17.8%) rallied after U.S. President Trump said that his administration would create a new office of Shipbuilding and offer new tax incentives for the sector. Natural gas companies, EQT (+15.3%) and Expand Energy (+14.2%), gained after natural gas prices hit highest level in more than two years, on higher LNG demand and power consumption.

In Europe, the German DAX outperformed after a new defence and infrastructure spending plan of €1 trillion was approved in Germany. Consequently, defence-related names, Rheinmetall (+31.2%) and Thales (+26.2%) rallied. Luxury brands, Kering (-29.0%) and Burberry (-28.7%), moved lower during the month on growing economic uncertainty and tariff concerns.

In China, investors continue to keep an eye on whether stimulus will be sufficient and delivered in time to offset further tariff pressure. Across the board, mining and gold stocks rallied as the spot price of gold hit record levels: Harmony Gold (+44.0%), Impala Platinum (+37.5%), Fresnillo (+27.1%), Endeavour Mining (+20.6%), Zijin Mining (+17.7%), Newmont (+16.1%).

Acquisition targets also rallied during the month: Fortnox (+25.5%) and ENN Energy (+18.2%).

The first couple months since U.S. President Donald Trump’s inauguration have been headlined by bold policy shifts and back-and-forth tariff announcements – leading to significant uncertainty in the market and questions around whether America can maintain its dominance.

As our title suggests, while Trump’s efforts aim to “Make America Great Again”, his policies are effectively isolating the U.S. and creating a divide by prioritizing the U.S. at the expense of global allies. As policy uncertainty in the U.S. has escalated, we’ve seen a shift away from U.S. exceptionalism and an outperformance in European and UK markets.

Looking back, one of the key drivers of U.S. exceptionalism was superior economic growth. However, the ongoing policy uncertainty is creating an environment of hesitation. With the fear of further policy changes or additional tariffs, companies are holding back on major investments; opting for a wait-and-see approach rather than expanding operations or increasing production. This delay in investment not only slows down business growth but also has a ripple effect on the broader economy, as it hampers job creation and consumer sentiment. As a result, GDP growth expectations are being downgraded.

Consumer sentiment is being impacted as is evident in the University of Michigan Consumer Sentiment Index. As consumers increasingly worry what the next year will bring, they pull back on spending.

In the same report, the one-year ahead inflation expectations rose to 5%, with the long-term (5-10 year ahead) inflation expectations rising to its highest level since 1993. Unlike during the pandemic when consumers largely understood that the price spikes would be short-lived, it is evident that consumers see the price pressure today as longer lasting. These higher inflation expectations are creating uncertainty around the timing of interest rate cuts.

Shifting Power to Competing Regions

As U.S. exceptionalism seems to be unravelling, regions that were once overlooked are now becoming more appealing.

• • President Trump made headlines with his harsh comments and interaction with Ukrainian President Zelenskyy at the White House, which many saw as a sharp departure from diplomatic relations. Additionally, Trump’s stark messaging to European allies, urging them to take more responsibility for their own defence without relying on U.S. support, further rattled international relations. These incidences amplified fears of U.S. unpredictability and its commitment to global alliances. In February, Germany’s conservative party won the federal elections and announced a €1 trillion defence and infrastructure spending plan, which has the potential to add up to one percentage-point to GDP – essentially doubling GDP growth from 1% to 2%. Consequently, we look for companies that are well positioned to capitalize on the higher economic outlook in Germany and neighbouring economies.

• • Another example showing a divergence from U.S. exceptionalism, is China’s developments in AI innovation. U.S. tech giants have dominated the global market, with U.S. authorities also trying to limit China’s access to advanced technology. Despite this, we recently saw a Chinese startup called DeepSeek, launch a large-language model that was developed at a fraction of the cost of similar U.S. models. This development proves that China can still be seen as a contender in the global AI race despite the restrictions. This led to a drop in the share price of U.S. tech giants, as valuation premiums reduced. On the other hand, we saw Chinese shares rebound from their historical lows as investor sentiment improved.

Tariff Turbulence

Tariffs have remained top of headlines with market participants focused on April 2nd – a day that U.S. President Trump dubbed “Liberation Day”. He announced reciprocal tariffs that were more aggressive than the market had anticipated. Despite their severity, the move helped provide some clarity to the widespread uncertainty, with experts suggesting that these tariffs should be viewed as a ceiling. They expect that more exemptions will be granted, and a more targeted approach will emerge; ultimately leading to Trump scaling back some of the tariffs. 

The IMF estimate that a universal 10% rise in U.S. tariffs, accompanied by retaliation from the Euro Area and China, could reduce U.S. GDP by 1% and global GDP by roughly 0.5%. Average tariffs were previously sitting at 2.5%, therefore an increase to an effective rate of 24% would cut U.S. GDP growth by approximately 2.15% and increase inflation by approximately 1.075%.

What catalysts could drive U.S. performance?

A key question for investors is how far will Trump go and how much pain does the market have to endure? Trump’s behaviour in the last few weeks has shown his rhetoric of short-term pain for long-term benefits. Experts have highlighted that the most obvious trigger for an equity rally would be evidence of a “Powell Put” where the U.S. Fed cut rates sooner than expected, prompted by worsening conditions and weaker data.

A potential tailwind would be the departure of Elon Musk from DOGE and the Trump administration. This would ease the anxiety that Musk created over job security and the rollback of support programs.

It is general consensus that companies would rather face higher costs with greater certainty, than lower costs but more uncertainty. This emphasizes the significant discomfort surrounding the current uncertainty in the market. CEOs are adopting a wait-and-see approach, hoping for clarity once the dust settles.

Unfortunately, as the U.S. isolates itself, partners such as China and the European Union are put in a position where they can’t rely on the U.S. and will find ways to offset this shift.

The world is evolving, and it’s imperative to recognize these shifts and make dynamic investment decisions accordingly.

The ALSI ended the first quarter on a strong note, rising 3.1% in March, outperforming global peers, and ending the quarter with a 5.4% gain. However, the rally was largely driven by resource stocks, which surged 19.5% in March and are up 32.3% year-to-date, while other sectors significantly lagged. Industrials dipped 0.6% in March but finished the quarter up 3.7%, general retailers remained flat year-to-date, and both financials and property ended the quarter in negative territory, down 1.8% and 3.8%, respectively.

Resource gains this quarter were led by gold and PGM counters as investors sought safe-haven assets amid global uncertainties. Harmony soared 76.9% after reporting strong 1H25 results that showed a 31.9% increase in diluted EPS, record-high free cash flow, and a strong dividend payout.

The rally in gold prices also boosted DRD Gold (+71.8%), Gold Fields (+64.1%) and AngloGold (+63.1%). PGM miners also saw substantial gains, with Impala climbing 43.5%, Sibanye advancing 39.1%, and Northam increasing 34.4% as PGM prices rebounded.

Within industrials, MTN was a standout performer, rising 34.0% year-to-date as sentiment improved following the approval of a 50% tariff hike in Nigeria and stronger-than-expected FY24 results. Anheuser-Busch also performed well, climbing 20.5% after delivering solid FY24 earnings in February. Richemont, despite losing 15.1% in March, still finished the quarter up 14.2%, supported by a robust festive season sales update in January. On the other hand, Motus was a major laggard, shedding 28.3% in Q1 after delivering disappointing interim results that missed expectations, largely due to weaker new vehicle sales.

In contrast, SA Inc stocks faced a challenging quarter, particularly retail stocks, which struggled amid an uncertain global environment. Truworths was the hardest hit, plunging 30.6% after its 1H25 results came in weaker than expected, reflecting declining sales and margin pressure that led to a drop in HEPS. Woolworths also struggled, falling 18.2% as earnings were weighed down by underperformance in its fashion and Australian divisions. Foschini and Mr Price lost 26.0% and 24.9%, respectively, despite reporting decent festive trading updates, as investor sentiment remained weak toward the sector.

Despite the year-to-date losses in financials and property, updates from both sectors signalled improving fundamentals. The big four banks—ABSA (-6.7%), FirstRand (-5.4%), Nedbank (-8.7%), and Standard Bank (+7.9%)—all reported strong operational performance, with improving credit quality and declining credit impairments supporting earnings growth. The property sector also showed resilience, with companies reporting improved leasing activity, which contributed to growth in net operating income and distributable income. Additionally, stable balance sheets suggest that the sector remains on a solid footing despite broader market weakness.

After the first postponement since the end of apartheid and amidst much scrutiny, the finance minister tabled the 2025 South African budget on March 12^th, the first of the GNU era. With the ANC lacking the votes to push through their first draft, it was always going to be tough to obtain broad consensus, and it has proven so. In our view, the process has been mishandled by both major GNU partners, resulting in elongated timelines and a sentiment sapping spat which has caused the market to recalculate the odds of the DA remaining in government. A few new alliances have emerged, which is positive for the probability of a budget passing, though casts fresh doubt on the future of the GNU, as currently constructed. Looking at the budget itself, commentators agree that it is fiscally conservative, though lacking catalysts for sustainable economic growth in South Africa, whilst also increasing the tax burden on an already constrained consumer.

The Facts

The main thrust of the effort to bring the books into balance is a proposal for a 50bps increase in VAT over each of the next two fiscal years, for a final figure of 16%, from 15% now. This is to be implemented alongside a broadening of the list of zero-rated items and projected to bring in R13.5bn in 2026 and R30bn in 2027. For context, household consumption in South Africa is around 65% of GDP, at over R3-trillion in constant terms.

Together with this proposal, the increase in national tax burden is encapsulated by the non-adjustment of the income tax brackets for inflation, and an increase in sin taxes, between 4.75% and 6.75% across products. The bracket creep alone is expected to bring an additional cumulative R57.4bn into government coffers by 2028.

Theoretically, the increase in taxes, in and of itself, is not an issue. In our instance, the South African government has failed to produce any sort of return on that incremental outlay from the taxpayer. The aggregate demand policy direction taken by previous parliaments together with perennially poor execution on any supply side spending programs, have resulted in a deterioration of the sovereign fundamentals and gradual erosion of investor sentiment.

This seems to be the main sticking point between the ANC and its GNU partners, once again. In addition to an expanded infrastructure program, centered on logistics, energy and water, the added fiscal squeeze on an already beleaguered consumer base seems to be geared toward maintaining the status quo in granting real increases to public sector wages and expanding the social security base, measures which are unpopular with GNU partners.

Other highlights include:

• • • An allocation for performance-based municipal reform.
    • A renewed focus on efficient spending in education and healthcare.
    • An additional R4bn over the next three years to SARS.

Treasury have forecast a 1.9% increase in GDP for 2025, driven by 1.9% increase in household spending, a 5% increase in capital formation and a 3.8% increase in public spending.

Where To From Here?

Fiscus

The proposed measures, in aggregate, are expected to make a dent in one of the two primary needs of the economy – namely fiscal consolidation, with spending increases funded by incremental tax revenues. The secondary need is for growth-inducing spending and policy reform, which we do not think is sufficiently addressed in this budget.

• • • Treasury forecasts that these measures will bring forward the peak in our public debt to GDP ratio in the 2025/2026 year.
    • The budget deficit is forecast by treasury to have already peaked at 5% of GDP in the last fiscal year, trending towards 3.5% in the 2027/28 year.
    • The expectation is for debt servicing costs, which account for 22% of expenditure, to peak in the current year as well.
    • The current infrastructure spending plans will lead to economic development becoming the fastest growing expenditure item in the budget, over the medium term.
    • Social and wage spending remain large and fast growing, relative to the investment needed to unlock a sustainably higher growth trajectory.

Politics

The process of passing a budget, subsequent to its announcement by the finance minister, starts with a vote on the fiscal framework, followed by decisions on the make-up of taxes on the economy and the division of revenue. With the various members of the GNU, and parliament at large, needing to come to an agreement, there are therefore a number of key steps that will unfold in the coming weeks.

• • • The Finance Committee made its submission to the national assembly on April 2^nd, with the vote to adopt the fiscal framework passing.
    • The DA voted against the motion and announced that they are heading to court to challenge the report on procedural grounds, with MK and EFF sharing this view.
    • This led to the ANC striking deals with a few smaller parties, and they will now spend the next month negotiating with them on ways to fund their budget shortfall without raising value-added tax.
    • The prevailing view is that the above-mentioned deals are not binding on the ANC, but are instead discussions wherein the smaller parties hope the ANC indulges their recommendations.
    • In the instance that the budget appropriations bills are not voted into law, we would revert to legislative rules on spending to maintain the business of the day.
      • • In the first four months of the year, spending may not exceed 45% of the total of the previous year’s budget.
        • During each of the next eight months of the year, spending may not exceed 10% of the previous year’s total.

Most parties are in favour of the budget, outside of the VAT increase issue. The ANC have taken an aggressive stance in proceeding with it to this point and we now find ourselves with heightened risk of the failure of the GNU. For the DA’s part, it seems as though their attempt to use this budget to renegotiate their position within the GNU has backfired. This level of uncertainty is being reflected in a broad-based sell-off of South African assets.

Conclusion

At this juncture the markets want to see both fiscal consolidation and value accretive supply side spending plans in the details of the budget. Allied to that, it remains crucial that the GNU demonstrate a credible commitment toward consensus building. The perceived failure to do so threatens to derail the project. While constructive on the conservative framework of the budget, commentators argue the prudence of imposing even more tax on an already constrained economy, rather than delivering on promised spending cuts. There remains an elevated level of political risk over the next month. The market waits to see if the ANC keeps its promises to their partners on this budget. The DA legal challenge, if successful, could lead to an interdict on the budget process, causing more uncertainty. Finally, the future of the DA in the GNU is uncertain; were they to exit, it is our view that markets would react negatively. Investors will need to remain patient and assess the full impact of any potential changes on investment theses. We, here at NVest, are alive to the risks at hand and are testing our views on positioning across our portfolios.

Following the disappointing 1H25 results released on Thursday, 27 February, we have decided to exit our position in Motus. The key concern being management credibility—missing their own guidance has led to a loss of confidence, increased forecast risk, and made future projections less reliable.

Key Concerns

Motus materially fell short of its own guidance for both revenue and operating profit, raising doubts about management’s control over operations. The increased forecast risk makes it difficult to rely on future guidance, adding uncertainty to earnings expectations.

Interim Results

Revenue declined by 2% compared to expectations for single-digit growth, driven by weakness in Retail & Rental and Mobility Solutions due to a decline in new vehicle sales across all regions. Operating profit decreased by 4%, missing the guidance of marginal growth, as consumers downgraded to entry level vehicles, competition intensified, and demand weakened. While headline earnings per share grew by 3%, driven by a 10% decline in net finance costs, this was below the expected 9% growth for 1H25.

Weak FY25 Guidance

Management provided guidance for the 2025 financial year, which we view as negative. Operating profit is expected to be marginally below the prior year, while net finance costs are expected to decline in the low double digits. Decreased finance costs will not be enough to offset top-line weakness and drive earnings growth. As a result, management expects headline earnings to remain flat, well below expectations of +13% growth.

Based on our projections, achieving flat earnings would require 10% revenue growth in 2H, with new vehicle sales needing to increase by 19%. Achieving this seems unlikely, especially given that pricing remains at 2.3%, and Motus car sales volumes remain in negative territory.

Decision to Exit

MTH’s recent weakness sees it trading on a P/E of 6.2x, in line with the long-term average of 6.5x. We continue to see further risk of derating should management once again fail to meet market expectations.

In our opinion, Motus lacks a short-term turnaround catalyst. The failure to meet market expectations remains a real concern, and, most importantly, we have lost confidence in management. Given this, we are exiting our position in Motus.

It is always important in times of increased volatility to have a cool head and assess all the incoming information before reacting. Over the last few days, we have seen some big moves in stock prices and emotions are running high causing indiscriminate selling. While there is no doubt that U.S. tariffs will have an impact on growth in the short term, well managed companies will prevail and it’s at times like these that buying opportunities present themselves. We remain cognisant of the risks of retaliatory tariffs escalating into a trade war but are keeping an eye on valuations and looking for opportunities.