HeatMap
MPS provider investment teams are asked how they expect to change their asset allocation over the next quarter.
We saw heightened market volatility towards the end of Q1 largely due to Trumps tariffs causing markets to price in increased risks of a stagflationary environment for the US. Trump has shown his commitment to bringing down the trade deficit the US has with it's trading partners and at this stage there is a lot of uncertainty on how other nations will reply.
Our outlook for Q2 2025 is one of increased volatility primarily due to Trumps “Liberation Day” Tariff announcement that is planned for the 2nd of April. We believe offshore equities will underperform and if tensions continue to rise, we should see a risk-off sentiment perpetuate into local equities too. Additionally, we believe bonds and gold will most likely outperform equities given their defensive naturewhile the market waits for more clarity on world affairs
As we enter Q2 2025, the global economic landscape remains complex. The Magnificent Seven stocks are likely oversold given their strong fundamentals and attractive relative valuations, but the Trump administration’s upcoming debt refinancing poses a risk to increasing these tech positions prematurely.
We expect offshore equity to outperform local equity (would you buy Google on a 20 PE or Clicks on a 30 PE?), despite a strong start for local assets. However, excluding rand hedge counters like gold miners, Prosus and Naspers, local equity performance is less impressive.
The commodity cycle appears to have bottomed, presenting opportunities, but timing is crucial. Local fixed income is preferred over global fixed income, evidenced by strong demand, and oversubscribed bond auctions underpinned by high real yields.
Our preference is flexible bond exposures, based on the fickle global environment. We are neutral on the rand based on commodities and fixed income real-yield tailwinds, but negative due to own-goal ANC politics.
Our risk appetite towards fixed income duration risk and growth assets is governed by four risk factors:
Global macroeconomics:
- Bias is towards at least average inflation-free GDP growth.
- Global business cycle evolution:
- Bias is at least average growth assets exposure, for as long as risk of an economic recession is low.
Global asset class valuations:
- Bias is at least average exposure to asset classes whose valuations are fairly to cheaply valued on both short-term, as well as long-term, measures.
Global currency risk valuations:
- Bias is at least average exposure to currencies whose valuations are fairly to cheaply valued on both short-term as well as long-term-measures.
On this basis, our outlook for Q2 2025 is dislocated from benchmark exposure for:
Global asset class valuations:
- DM equities too expensive due to US equities
- We are expecting an ongoing correction until this normalises
Global currency risk valuations:
- US dollar too expensive, and rand to cheap
- We are expecting an ongoing correction until this normalises
The rest of our risk budget is at benchmark weight for Q2,2025.
The Trump administration’s recent move to impose substantial tariffs on US trading partners hangs as a dark cloud over our second-quarter outlook. If kept in place, these threaten to disrupt global trade massively, potentially dragging the US into a recession while stoking inflation. The effect on the global economy would be very negative and would have long-lasting consequences as countries including South Africa adjust to the shock. It’s hard to imagine the tariffs not being rolled back at least some degree, but even if they are, continued policy uncertainty remains a threat that could lead to persistent investor caution.
Equity markets, both global and local, have reacted extremely negatively to the tariffs thus far, and we expect heightened volatility to persist in the second quarter. In addition to global risks, local assets are also exposed to ongoing negative political news flow in the wake of the controversial budget currently testing the GNU. On both the global and local fronts, the situation remains highly fluid and we have refrained from making drastic portfolio changes for now. The current steep selloff in equities has indeed piqued our interest, but unless Trump changes his tone soon, we expect better opportunities to add exposure later in the year.
Market volatility remains elevated, particularly in the US, where policy uncertainty and geopolitical risks continue to weigh on sentiment. However, economic fundamentals remain solid, with strong job growth and corporate earnings.
The AI-driven tech sector remains a key growth driver, though stretched valuations warrant caution. Elsewhere, we see opportunities in selective European equities, supported by fiscal expansion and Japanese equities, where a brighter economic outlook and corporate reforms are driving improved earnings and shareholder returns.
We remain cautious on emerging markets due to mixed growth prospects and tariff concerns. With US Treasuries losing some of their diversification benefits, we favour gold as a hedge.
Locally, South African bonds continue to offer value, while South African equities present upside potential given relatively attractive valuations and an improving outlook on economic growth. Despite this, there remain areas of weakness, particularly in wages and unemployment.
Overall, we are overweight global assets, favour South African bonds, and hold a neutral position on South African equities.
Our asset allocation team recently conducted it’s monthly asset allocation review. The committee remains cautiously optimistic on asset class returns for the next 12 months.
We have a moderate overweight towards local equities as well as global equities, including emerging market equities. We believe that certain global macroeconomic Factors, such as recent Chinese and German fiscal stimulus, plus dollar weakness, could be supportive of decent earnings growth over the next 12 months.
That said, we have tempered our conviction on growth assets because of geopolitical tensions (mainly trade wars). We maintain our underweight to SA property and would rather take our duration bet via SA bonds and SA inflation-linked bonds (ILBs). SA bonds are still offering compelling yields, despite our recent SA Budget.
We maintain our neutral stance on global bonds but are deliberating on increasing global ILBs from negative to neutral.
We expect a major theme for the rest of this year to be the continuation of the global disinflationary trend, with monetary easing and stable, modest global growth.
US growth is projected to remain strong, driven by robust consumer spending and AI-driven investments. However, this outlook may be challenged by rising geopolitical risks and potential disruptions from the Trump administration’s economic policies. All of these factors could undermine US growth expectations and increase the risk of a US recession and a possible resurgence in inflation.
Against this backdrop of rising macroeconomic uncertainty, the most recent application of our 4R TAA framework (regime, return, risk relative positioning) resulted in us reducing the size of our overweight positions in SA equity and emerging market equity, while maintaining a neutral view on developed market equity.
We remain constructive on SA fixed income, preferring shorter-duration bonds over longer-duration bonds, while we still view global fixed income as generally unattractive, maintaining an overall underweight position in the asset class.
Our outlook remains cautious in the short term, due to heightened market uncertainty. We expect a broadening of the market away from the prior concentration in US large-cap tech counters.
US growth looks to be slowing somewhat, but we expect markets to focus more on the US inflationary trajectory and the subsequent monetary policy response by the Federal Reserve.
As we enter the second quarter, the US equity market finds itself in correction territory following an initial surge post the presidential election of Donald Trump.
Investors are now grappling with the rapid and often unpredictable shifts in US policy. The realisation that tariffs will be used as more than mere negotiation tactics has led to a re-pricing of risk in the markets.
The likely effect is higher input costs and lower margins for US businesses, and increased prices for consumers. Growth uncertainty is reflected in soft data from consumer confidence and small business surveys, compounded by the risks associated with immigration controls and the layoff of thousands of government employees.
The potential for stagflation in the US is becoming more pronounced, and markets are beginning to price in this risk. Despite these challenges, a more domestically-driven US economy could offer attractive long-term investment opportunities.
In contrast, European markets are demonstrating strong corporate results and improving sentiment, driven by lower gas prices and potential infrastructure spending. China is also positioned for growth, with advancements in AI and supportive policies, while Japan continues to benefit from reflation and structural reforms. Geopolitical tensions and policy risks remain critical considerations in constructing a well-diversified portfolio. Market volatility is expected to remain elevated as investors navigate the implications of the Trump administration's trade policies and protectionist measures.
Europe:
Europe is showing signs of recovery with improving economic indicators, moderate inflation, and growth starting to pick up. The fiscal stimulus will also help the economy to grow. The outlook remains positive.
China:
We’re still bullish on China, with long-term growth driven by innovation, technology and domestic consumption. Despite challenges, government policies are supporting key sectors like AI and green tech.
South Africa:
South Africa offers significant potential. Valuations remain attractive, in both equity and bond markets, making it an appealing investment despite ongoing political challenges.
US:
While the US economy is steady, uncertainty around Trump’s policies and their potential impact on consumer confidence and spending creates some risks. Policy uncertainty may affect short-term consumer sentiment and economic stability.
Heading into the second quarter of 2025, concerns around economic growth, increasing inflation expectations, and geopolitical tensions are driving significant volatility and market rotations.
Global manager positioning towards the US showed an extreme drop during March, with a notable collapse in investor sentiment. The correction has offered a more attractive long-term entry point, with improved valuations and lower concentration risk. However, concerns remain around economic growth under the prospects of trade war escalations, given the economy’s more vulnerable state (weaker labour market, depleted savings, and higher borrowing rates).
Many policy initiatives are to the detriment of the US consumer and increasingly threatening the ‘American exceptionalism’ narrative. Elsewhere, policy shifts and valuations offer opportunities.
European equities have had a strong rally, narrowing the valuation gap with the US. Earnings upgrades and fiscal stimulus could support further upside. In China, increased stimulus initiatives and better-than-expected economic activity could support broader optimism following recent enthusiasm for Chinese technology counters. Locally, despite the uncertain global environment, assets have remained highly resilient.
Looking through the political headlines, the GNU seems to be holding and fulfilling its role. The improved prospects from political reform and the potential for a positive growth surprise remain in place, albeit vulnerable to external shocks.
We are maintaining a neutral position to equities and offshore exposure, but remain well diversified across regions. We continue to hold moderate exposure to local bonds, given the attractive real yields and margin of safety in the income component.
Amity’s outlook remains that the global economy is transitioning into an early expansion phase, driving an acceleration in corporate earnings. While markets have recently sold off due to growth concerns – amplified by the Trump administration’s tariffs, which are perceived as anti-growth – we view this volatility as temporary. Our leading indicators continue to signal an expansionary shift in the business cycle.
At the same time, lower oil prices are easing cost pressures, creating a more supportive backdrop for global demand. These factors should help sustain economic momentum and reinforce the medium-term outlook for equities, even as short-term uncertainty persists. China’s stimulus measures remain a tailwind for emerging market assets, while US tariff threats, though disruptive in the short term, are still viewed as a negotiating tactic rather than a structural risk.
In our Q1 commentary, we described 2025’s investment outlook as a complex mix of political, economic and market forces. This remains true, with President Trump’s tariff policies unsettling global expectations and increasing market volatility.
Trump’s ‘America first, rest of the world pays’ stance is facing strong retaliation, heightening inflation risks and weakening global growth. Markets initially expected higher yields and a stronger dollar. However, Treasury secretary Scott Bessent has prioritised lowering the dollar, 10-year yields, and oil prices – a strategy seemingly taking effect, whether by design or not. Notably, Q1 saw a record rotation out of US stocks as investors sought value elsewhere. Entering Q2, we remain modestly cautious in our asset allocation views.
Meanwhile, South Africa’s outlook has worsened. Slowing growth, VAT hikes, load-shedding fears, and GNU political uncertainty have dampened sentiment. In response, we have increased offshore exposure and reduced longer-duration bond holdings.
The global economy faces mounting headwinds, with the US showing signs of slowing growth. Recent data points to weakening consumer spending, softening PMIs, and a cooling labour market, raising recession risks.
The Fed’s restrictive policy adds pressure, while shelter inflation remains sticky. Additionally, corporate default risk is rising as higher interest rates strain balance sheets, particularly among highly leveraged companies. Historically, firms with strong balance sheets—such as mega-cap tech (Microsoft, Apple) and defensive sectors (utilities, healthcare)—tend to navigate downturns more effectively due to robust cash reserves and pricing power creating opportunity as the economy exits a low growth environment.
Meanwhile, US-South Africa relations remain strained under SA’s Government of National Unity (GNU), which is showing internal fractures. Policy uncertainty and shifting diplomatic priorities could further complicate trade and investment flows. Investors should monitor geopolitical risks alongside economic indicators for potential volatility. We are continuously monitoring global macro data and await more concrete evidence to justify big tactical shifts.
We have maintained a moderately overweight position in SA nominal bonds, supported by attractive valuations and some positive policy developments, preferring them over local cash and offshore bonds – although the long-term prognosis for economic growth does not augur well for fiscal sustainability.
We have opted to stay neutral in offshore equities in the wake of rising trade tensions and policy uncertainty. The US sentiment is weakening, with slower retail sales and a bearish business outlook. Globally, the eurozone, the UK and Japan are showing signs of improvement, but US recession risks are rising alongside increased economic and trade policy uncertainty. While potential policy shifts and global recovery could support equities later this year, we prefer to stay neutral for now.
Last quarter, we highlighted our expectation of higher volatility as the world makes sense of President Trump’s policies as well as the impact of fewer rate cuts from the US Federal Reserve. These have put a dampener on the multi-year rally in US companies. In fact, cheaper markets in Europe and China are performing better this year.
South African equities are also doing well. Our preference for domestic assets compared with offshore is paying off. We continue to hold this view as we think, despite the recent rally, domestic equities and bonds remain attractively valued. Sentiment towards them is also positive given the resurgence of China’s technology companies, higher commodity prices and better country governance due to the GNU.
These have trumped the fallout with the US, and we expect them to continue providing tailwinds to domestic assets. We are using SA and global cash to fund our overweight position in growth assets.
Global uncertainty remains elevated, with concerns around US policy recently triggering a market correction. Over the past year, we maintained a neutral stance on global equities, expecting that any further gains would come from broader market participation. Encouragingly, this began to materialise, with European and Chinese markets outperforming earlier in the year. However, markets continue to seek greater policy clarity, while sticky inflation and the US Federal Reserve’s limited ability to cut rates are contributing to ongoing caution.
Locally, asset classes continue to offer compelling value with local bond and equity valuations providing appealing risk premia. Given the global backdrop, volatility and downside risks persist.
The age of uncertainty is upon us. Not only is predicting Trump’s next move a daunting task on its own, but predicting the reaction (from the rest of the world) is near impossible.
As a team we see a wide array of risks that could play out in the next three months, but that also provides us with a great opportunity. We made a concerted effort to diversify our portfolios geographically as well as through sectors. We are, however, still optimistic about the prospects of AI and tech enhancements and how broad acceptance and implementation of these aspects could benefit productivity and boost growth.
It is also clear that most governments share our view and it’s probably a coin flip on who will win that race. So, although we see significant potential risks in the short term, we are still optimistic about the prospects for risk assets over the medium to longer term.
As we entered 2025, we anticipated heightened policy uncertainty. However, few could have predicted the sheer scale and intensity of political developments emanating from the White House – and we are only three months into the year.
Despite the persistent political noise, our focus remains firmly on the fundamental drivers that have historically shaped financial markets and will continue to do so.
At its most recent meeting, the Federal Reserve opted to hold short-term interest rates steady. Market expectations currently point to two or three rate cuts over the next 12 months, driven by concerns over a potential US recession. However, we believe these fears may be overstated. Instead, we expect the impact of tariffs to keep US inflation elevated in the near term, likely compelling the Fed to maintain its current stance on interest rates for longer than the market anticipates.
From a valuation perspective, the US equity market remains expensive, even after the first quarter correction in the S&P 500. Opportunities are more compelling in select international equity markets, particularly outside the US. We are closely monitoring earnings expectations across various markets for any signs of deterioration, which could prompt a more cautious positioning within our model portfolios. Additionally, we continue to identify selective opportunities in both the South African equity and bond markets.
Markets kicked off 2025 at levels of ‘maximum uncertainty’ ,even in the words of the IMF. Sentiment soon turned negative as a January rally gave way to renewed volatility as markets were spooked by the news of DeepSeek and threats of US tariffs reignited trade tensions.
Monetary policy remained a central theme, with the Federal Reserve holding rates steady and the European Central Bank continuing to ease. Locally, the SAR B's rate cut had little impact, while South African bonds and the rand recovered despite political uncertainty around the government of national unity amidst an unprecedented delay in delivering the national budget speech.
Emerging markets, particularly China, found support from Al-driven optimism, while commodities saw mixed returns, with gold briefly reaching record highs.
Since the inauguration of Donald Trump, trade and fiscal policy uncertainty has increased dramatically. Trade tariffs on trade-surplus countries to the US has started and are expected to pick up over the next few months, and hostilities between the US and South Africa have intensified. Although we prefer to look through the noise and take a longer-term view, such events lead to increased uncertainties that will lead to more market volatility. The prudent approach is to remain close to our strategic asset allocation benchmarks. We have also retained our slight defensive tilt, as volatile markets could provide investment opportunities.
