February 2025 brought renewed volatility across global markets, as investors navigated evolving economic policies, geopolitical tensions, and shifting monetary expectations. South African markets reflected a mixed picture, while global equities experienced pressure from weakening growth outlooks and sectoral realignments.
Global Market Overview
The US equity market struggled in February, with the S&P 500 declining by 1.34% in USD, as investor sentiment was weighed down by hawkish signals from the Federal Reserve. The Nasdaq 100 was particularly affected, posting a sharp decline of 2.71% in USD, as technology stocks faced pressure from rising yields and cautious corporate earnings guidance. While inflation data suggested some moderation, market participants remained wary of the Fed’s pace of future rate adjustments. This macroeconomic backdrop added to investor caution, dampening risk appetite across US equities.
A significant contributor to market unease was the introduction of new tariffs by the Trump administration, aimed at key trading partners including China, Mexico, and the European Union. These protectionist measures, part of a broader effort to reduce the US trade deficit and support domestic manufacturing, introduced fresh uncertainties for global supply chains. Markets reacted negatively, as major corporations warned of rising input costs and potential retaliatory tariffs from affected nations. The technology sector, particularly semiconductor and electronics manufacturers with significant exposure to Chinese supply chains, bore the brunt of the market reaction. Investors responded by rotating out of high-growth sectors and into defensive assets, contributing to increased volatility across major US indices.
European markets exhibited a similar downward trend, with the MSCI World Index declining by 0.72% in USD. The broader MSCI ACWI Index followed suit, posting losses of 0.60% in USD, reflecting weaker economic momentum and ongoing geopolitical concerns. Meanwhile, the UK’s FTSE 100 bucked the trend, gaining 3.36% in USD as investors responded favorably to the Bank of England’s decision to cut interest rates by 25 basis points to 4.5%. This move was intended to support economic growth, as inflation remains a persistent concern in the region.
Emerging markets showed signs of resilience, with the MSCI EM Index managing to remain stable, inching up by 2.28% in USD. Strength in select Asian economies (including India) and Brazil, contributed to the index’s positive performance. However, China’s economic environment remained a focal point for investors. The Hang Seng Index surged 13.65% in USD, driven by optimism surrounding China’s latest economic stimulus package. The Chinese government’s continued support for key industries, including technology and consumer sectors, bolstered investor confidence. The People’s Bank of China maintained its monetary policy stance, keeping its loan prime rate unchanged while signaling potential fiscal interventions to sustain growth amid ongoing trade tensions with the US.
South African Market Overview
Domestically, the FTSE/JSE All Share Index remained relatively flat, declining marginally by 0.01% in ZAR. The market was characterised by sectoral divergences, with the resource-heavy local index finding some support from rising commodity prices, while financials and industrials faced headwinds.
The South African listed property sector continued to struggle, with the FTSE/JSE SA Listed Property Index declining 0.29% in ZAR. Persistent structural challenges, high vacancy rates, and concerns over interest rates kept the sector under pressure. Conversely, bonds posted a modest gain, with the FTSE/JSE All Bond Index rising 0.07% in ZAR, supported by steady demand for fixed-income securities amid volatile equity conditions.
February also saw notable political and economic developments, including the delay of the national budget amid a political standoff over a proposed VAT increase. President Cyril Ramaphosa introduced new land expropriation policies aimed at accelerating land reform, sparking heated debate among investors and economic analysts. While the government emphasized the need for equitable land redistribution, concerns over property rights and long-term investor confidence led to volatility in real estate and banking stocks. These concerns were further exacerbated when US President Donald Trump issued a strong condemnation of the policy, threatening potential economic sanctions or trade restrictions. This rhetoric added to pressure on the South African Rand, which saw increased volatility as markets reacted to the possibility of strained US-South Africa trade relations.
Additionally, the latest consumer inflation data showed a slight increase to 3.2% YoY, with Statistics South Africa updating its consumer price basket to reflect changing consumption patterns. Employment conditions showed modest improvement, with a decline in the unemployment rate to 31.9%, though structural labor market issues remained a concern.
Key Insights from Weekly Investment Team Meetings
Throughout February, our investment team closely monitored evolving macroeconomic conditions and market trends. The following key themes emerged from our weekly meetings:
- Technology Sector Volatility: Discussions centered on the underperformance of tech stocks, particularly in the US, where rising interest rates pressured valuations. The team evaluated the long-term viability of AI and blockchain investments in light of these headwinds and remain optimistic on the long-term prospects for this sector.
- China’s Economic Stimulus: The strong performance of the Hang Seng Index prompted a review of China’s policy measures and their potential implications for global trade and commodities. The team explored opportunities within Asian equities while remaining cautious of regulatory risks.
- Fixed-Income Positioning: Given the uncertain rate environment, we debated the merits of increasing bond exposure versus maintaining liquidity for potential market dislocations. The consensus was to maintain a balanced approach, with a preference for high-quality bonds offering attractive real yields.
- South African Policy and Market Trends: Domestic economic conditions, particularly ongoing energy constraints, inflationary pressures, and the implications of the VAT proposal and land expropriation policies, were a focal point. The team assessed potential impacts on equity and fixed-income markets and adjusted portfolio weightings to underweight on South African risk assets.
- Global Inflation and Interest Rate Expectations: The team discussed inflation trends across key global markets, noting that the Federal Reserve’s continued caution on rate cuts and the Bank of England’s decision to lower rates signaled diverging monetary policies among major economies. This divergence influenced our global asset allocation strategy.
Portfolio Performance and Strategy
Our portfolios remained well-positioned to weather the February volatility. An overweight allocation to defensive assets, including selective exposure to high-quality bonds and alternative investments, provided stability. Despite the market’s headwinds, our strategic positioning in South African equities remained a key focus, with selective exposure to commodity-linked stocks offering a buffer against external pressures.
Looking ahead, global monetary policy shifts, geopolitical risks, and economic resilience will shape market direction. The divergence between developed and emerging markets remains a key theme, and our allocation strategy continues to focus on balancing growth potential with risk management. With inflation moderating and policy uncertainty persisting, we maintain a disciplined, diversified approach to portfolio construction to navigate evolving market conditions.
February underscored the importance of strategic diversification and disciplined asset allocation. As markets continue to digest macroeconomic developments, our approach remains centered on long-term value creation and prudent risk management to ensure resilience amidst uncertainty.
Source of all data: Morningstar, unless otherwise stated.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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