Relief for investors in South Africa

South African assets remain incredibly strong despite the heightened global volatility in financial markets over the last month.

With higher tariffs from US President Donald Trump, Old Mutual Wealth Investment Strategist Izak Odendaal said that the world’s largest economy is turning its back on a free and open global economy.

Despite suspended “reciprocal” tariffs imposed on 60 countries, Trump still increased tariffs on Chinese imports to 145%.

China responded with a 125% tariff on imports from the US, meaning profitable trade between the countries looks nearly impossible.

Despite the initial market shock from Trump’s April 2 “Liberation Day” tariff announcement, many equity benchmarks have already retraced their losses.

“This suggests that markets have sniffed out that Trump does not have the stomach for an extended trade war,” said Odendaal.

“After all, he has already made concessions. Investors believe that he will keep backing down and ultimately do deals with other countries, including China.”

Measured in dollars, global equities ended April in positive territory despite large intramonth drawdowns and negative returns from the USA.

The S&P 500 Index lost 0.7% in April and is down 4% for the first four months of 2025. However, it was down 15% at its lowest point.

Local equities more than retraced their losses, with the FTSE/JSE All Share Index at an all-time high above 90,000 points. This marks an over 20% return over the last year.

Still warning signs

Despite the equity market’s strength, the bond market is more circumspect. US bonds responded unexpectedly to the tariff shock.

Instead of the usual rally during a period of market stress, government bonds fell. This caused the benchmark US 10-year Treasury to rise from 4.2% to a peak of 4.5%, as lower prices increased bond yields.

South African bonds were highly volatile in the last month, responding to both global bond market volatility and concerns over the future of the Government of National Unity over fiscal policy.

Although the differences between the ANC and DA have seemingly been put aside, investors must wait until 21 May for details on the third attempt to pass the budget.

Finance Minister Enoch Godongwana will be challenged as there will be no VAT increase based on a weaker growth outlook compared to the draft Budget 1.0 published—but not tabled—in mid-February.

Amidst the extreme global risk aversion, the rand behaved exactly as many expected. It fell from R18.32/$ at the start of April to over R19.90/$ before regaining most of the ground.

“The rand typically sells off when global investors are jittery and then stabilises and strengthens,” said Odendaal.

“It just happened on a very compressed timescale, highlighting once again how difficult it is to time the currency.”

While the rand behaved as expected, the dollar did not. During heightened volatility, investors typically run to the dollar, but in this case, they sold off the dollar.

It remains elevated relative to its longer-term history, and has further room to fall if the growth outlook worsens and the US Federal Reserve starts cutting rates.

Odendaal also noted that commodity markets are showing the clearest sign of a significant market problem.

The gold price has been 22% higher since the start of the year, while oil prices have been 16% lower.

The former points to investor unease as investors look for a safe haven asset, while the latter suggests lower economic growth.

However, the lower oil price would reduce inflationary pressures worldwide and thus support the case for central bank rate cuts, including in South Africa, where inflation surprised to the downside in March.

Despite the weaker average rand over April, a weaker oil price will see the cost of petrol reduced by 22 cents per litre this week.