The temporary easing of US-China tariffs triggered a rally across risk assets, while softer inflation data globally reinforced hopes for a policy pivot by major central banks. However, the spectre of stagflation remained close at hand in key developed markets, and global trade frictions continued to cast a long shadow over the economic outlook.
On the local front, South African assets participated in the global rally. A rate cut by the SARB, combined with stronger commodity prices and improving global sentiment, provided a near-term tailwind. Yet structural headwinds — including rising unemployment, fiscal fragility, and political uncertainty — remain firmly in place.
Global Market Overview
Global equities recorded their strongest monthly performance since late 2023. The MSCI World Index gained 5.92% in USD, supported by temporary relief on the US-China trade front and growing confidence in the global disinflation trend.
The Trump administration’s announcement of a three-month reduction in tariffs on Chinese goods sparked an initial risk-on rally. This move — designed to facilitate further negotiations — alleviated fears of an immediate escalation in the trade war. In the US, the S&P 500 returned 6.25%, while the NASDAQ 100 surged 9.11% in USD, fuelled by AI-related optimism and strong earnings from semiconductor leaders such as Nvidia and Broadcom.
Nonetheless, signs of economic strain persisted. US Q1 GDP contracted 0.2%, reflecting a surge in pre-tariff imports and slowing domestic demand. While the Fed kept rates on hold, Chair Powell acknowledged the rising risk of a stagflation-like environment, with tariffs complicating the central bank’s balancing act.
In Europe, the FTSE 100 rose 4.83%, helped by a surge in business investment as firms front-loaded activity ahead of new tariffs. Eurozone equities also gained, with investors encouraged by progress in US-EU trade talks and stronger-than-expected corporate earnings.
Japanese equities performed well, with the JPX-Nikkei 400 up 3.95%. A US federal court’s temporary block of sweeping tariffs provided relief to Japan’s export-heavy economy. However, the Bank of Japan cut its growth forecast sharply and pushed back its inflation target timeline amid slowing global trade. China’s markets rebounded, with the Hang Seng Index gaining 4.72%, after Beijing and Washington agreed to temporarily lower tariffs. The People’s Bank of China cut benchmark lending rates to record lows, but entrenched deflationary pressures and weak domestic demand remain key risks. April CPI fell 0.1% YoY, while PPI slumped 2.7%, marking the 31st consecutive month of contraction.
Emerging markets posted a solid 4.27% gain (MSCI EM Index), supported by the US Dollar’s retreat, improving capital flows, and investor rotation into undervalued markets.
Global listed property advanced 2.71% USD, though structural concerns — particularly around refinancing risk and secular shifts in office demand — continue to weigh on sentiment.
[All performance figures in USD, unless otherwise stated]
South African Market Overview
South African assets tracked global markets higher in May. The FTSE/JSE All Share Index returned 3.14% in ZAR, led by Rand-hedge industrials, Naspers/Prosus, and platinum group metal counters.
The SARB’s 25bps rate cut to 7.25%, justified by a sharp decline in April CPI (2.8%) and Rand strength, triggered a rally in local bonds and property. The FTSE/JSE All Bond Index gained 2.73%, while the FTSE/JSE SA Listed Property Index added 2.32%.
Finance Minister Godongwana’s revised budget was passed with GNU backing, avoiding the controversial VAT hike but introducing a fuel levy increase. However, public debt is projected to rise to 77.4% of GDP in FY25/26, maintaining pressure on the sovereign risk premium.
South Africa’s growth outlook remains fragile and business confidence remains subdued, with political uncertainty and fiscal constraints limiting upside potential. The SARB now expects 1.2% GDP growth for 2025, with mining and manufacturing continuing to disappoint. Investor sentiment toward SA Inc. assets improved in May but remains highly sensitive to domestic political developments and global risk appetite.
[All performance figures in ZAR, unless otherwise stated]
Key Insights from Weekly Investment Team Meetings
- The team continues to monitor US-China trade dynamics and their implications for global inflation, supply chains, and EM performance.
- Stagflationary pressures in developed markets — particularly the US and UK — are rising; Fed and BoE policy responses will remain critical drivers.
- We maintain conviction in a barbell strategy, balancing global growth exposures (US tech, cyclicals) with defensive allocations (gold, quality short-duration bonds).
- Improving relative strength in emerging markets and global value stocks is driving selective tactical positioning.
- Locally, the SARB’s rate cut and soft inflation backdrop support a more constructive view on SA bonds and listed property, though caution persists regarding SA equities.
- Structural risks tied to South Africa’s fiscal outlook and political trajectory continue to limit appetite for additional SA Inc. risk.
- The team is closely monitoring global bond yields, FX volatility, and commodity trends, which are driving elevated cross-asset correlations.
Portfolio Performance and Strategy
Portfolios benefited from May’s global equity strength, particularly through targeted allocations to US technology, quality cyclicals, and emerging markets. The overweight to global value exposures and commodities also added value, as did allocations to gold and global bonds.
South African bond and equity exposures performed well, but our positioning remains cautious given domestic structural risks. Within listed property, exposure remains selective, focused on quality names with stronger balance sheets and income visibility.
Our fixed income positioning remains underweight global duration, with an emphasis on short-duration, high-quality instruments. We continue to favour global equities, with selective exposure to US tech, cyclicals, and EM markets. Within South Africa, our preference remains for Rand-hedge industrials and quality fixed income, with measured listed property allocations.
Looking ahead, we expect market volatility to remain elevated as geopolitical dynamics, monetary policy shifts, and domestic political developments evolve. We remain committed to flexibility, risk awareness, and dynamic asset allocation as we navigate this complex and rapidly shifting investment landscape.
Source of all data: Morningstar, unless otherwise stated.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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