Multi-Asset Scenarios<\/strong><\/h2>\n\n\n\nAt the outset of 2025, our highest probability is the \u2018New Regime\u2019 scenario, where we postulate that US growth must remain robust, which would keep corporate earnings growth strong.<\/p>\n\n\n\n
Inflation in developed markets ought to remain above central bank targets, but not uncontrollably. <\/p>\n\n\n\n
We anticipate treasury yields will remain elevated and South African government bonds will be attractive only for their running yield. <\/p>\n\n\n\n
When we review the \u2018evidence\u2019, we consider various lenses, whose relative importance varies over time. <\/p>\n\n\n\n
Currently, the key lenses are macro, momentum and valuation. <\/p>\n\n\n\n
1. Macroeconomics (and geopolitics)<\/strong><\/p>\n\n\n\nConsensus forecasts for real US GDP growth are 2.1% for the 2025 calendar year. <\/p>\n\n\n\n
Our \u2018New Regime\u2019 scenario is more optimistic, assuming Trumpian policies should be pro-business and that there are productivity gains to be unlocked from AI. <\/p>\n\n\n\n
\u2018New Regime\u2019 also assumes inflation will be above central bank targets but should not be out of control.<\/p>\n\n\n\n
Of course, good growth and warm inflation doesn\u2019t mean anything for investors if it is not translated into equity market earnings. <\/p>\n\n\n\n
For 2025, earnings per share (EPS) growth is still expected to be over 12% in nominal terms.<\/p>\n\n\n\n
Presently the 10-year US Treasury is around 4.5%, roughly inflation expectations plus real-growth expectations. <\/p>\n\n\n\n
But if the Trump administration is as tough as its rhetoric on tariffs, the concerns about a potential re-ignition of inflation worries are a real risk. <\/p>\n\n\n\n
While higher inflation impacts corporates via their \u201ccost-of-capital\u201d, that is only a negative if increased borrowing costs are not matched commensurately by increased earnings. <\/p>\n\n\n\n
Domestically, stability in the GNU has been a positive and so far markets have provided the benefit of the doubt. <\/p>\n\n\n\n
But policy action, outside a few areas like the Department of Home Affairs, has been slow to materialise, which will impact global investor sentiment towards SA. <\/p>\n\n\n\n
2. Price and earnings momentum<\/strong><\/p>\n\n\n\nIf we consider the long-term trend, positive price momentum remains intact. However, our quantitative signals give a more nuanced picture. <\/p>\n\n\n\n
The magnitude of December\u2019s moves turned our momentum indicator neutral on Global Equity, from long previously. <\/p>\n\n\n\n
Similarly, the back-up in bond yields leaves our signals neutral on Global Aggregate Bonds as an asset class. <\/p>\n\n\n\n
Qualitatively, these shifts happened on what we would consider relatively thin volumes towards the end of the year. <\/p>\n\n\n\n
Domestically, equities underperformed in the fourth quarter but the sell-off was not large enough to move our signal off a \u201cbuy\u201d. SA Government Bonds are also a buy. <\/p>\n\n\n\n
3. Valuation<\/strong><\/p>\n\n\n\nThe general comment that \u201cvaluations are stretched\u201d is broadly fair. Below is a plot of the equity-risk-premium (ERP) for the US, which is one way we can consider value. <\/p>\n\n\n\n
A quick visual inspection shows that equities look relatively very expensive against bonds. But, like most value signals, the ERP operates on a long time horizon.<\/p>\n\n\n\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2025\/02\/Standard-Bank-STANLIB-Graph-1-1024x476.png\")
<\/a><\/figure>\n\n\n\n
Consensus forecasts for real US GDP growth are 2.1% for the 2025 calendar year. <\/p>\n\n\n\n
Our \u2018New Regime\u2019 scenario is more optimistic, assuming Trumpian policies should be pro-business and that there are productivity gains to be unlocked from AI. <\/p>\n\n\n\n
\u2018New Regime\u2019 also assumes inflation will be above central bank targets but should not be out of control.<\/p>\n\n\n\n
Of course, good growth and warm inflation doesn\u2019t mean anything for investors if it is not translated into equity market earnings. <\/p>\n\n\n\n
For 2025, earnings per share (EPS) growth is still expected to be over 12% in nominal terms.<\/p>\n\n\n\n
Presently the 10-year US Treasury is around 4.5%, roughly inflation expectations plus real-growth expectations. <\/p>\n\n\n\n
But if the Trump administration is as tough as its rhetoric on tariffs, the concerns about a potential re-ignition of inflation worries are a real risk. <\/p>\n\n\n\n
While higher inflation impacts corporates via their \u201ccost-of-capital\u201d, that is only a negative if increased borrowing costs are not matched commensurately by increased earnings. <\/p>\n\n\n\n
Domestically, stability in the GNU has been a positive and so far markets have provided the benefit of the doubt. <\/p>\n\n\n\n
But policy action, outside a few areas like the Department of Home Affairs, has been slow to materialise, which will impact global investor sentiment towards SA. <\/p>\n\n\n\n
2. Price and earnings momentum<\/strong><\/p>\n\n\n\n If we consider the long-term trend, positive price momentum remains intact. However, our quantitative signals give a more nuanced picture. <\/p>\n\n\n\n The magnitude of December\u2019s moves turned our momentum indicator neutral on Global Equity, from long previously. <\/p>\n\n\n\n Similarly, the back-up in bond yields leaves our signals neutral on Global Aggregate Bonds as an asset class. <\/p>\n\n\n\n Qualitatively, these shifts happened on what we would consider relatively thin volumes towards the end of the year. <\/p>\n\n\n\n Domestically, equities underperformed in the fourth quarter but the sell-off was not large enough to move our signal off a \u201cbuy\u201d. SA Government Bonds are also a buy. <\/p>\n\n\n\n 3. Valuation<\/strong><\/p>\n\n\n\n The general comment that \u201cvaluations are stretched\u201d is broadly fair. Below is a plot of the equity-risk-premium (ERP) for the US, which is one way we can consider value. <\/p>\n\n\n\n A quick visual inspection shows that equities look relatively very expensive against bonds. But, like most value signals, the ERP operates on a long time horizon.<\/p>\n\n\n\n<\/a><\/figure>\n\n\n\n
![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2025\/02\/Standard-Bank-STANLIB-Graph-2-1024x472.png\")
<\/a><\/figure>\n\n\n\n