Media Release: How SA Markets Will Stack Up Against Trump’s Return

Investment experts from Satrix, Sanlam Investments, and BlackRock recently explored the implications of Donald Trump’s second term on South African markets during the recent ‘Impact of US Elections and Q4 Investment Trends’ IndexMore webinar. 

The panel, including Jack Aldrich, Vice President at BlackRock; Natasha Sarkaria, Vice President at BlackRock; Ralph Thomas, Head of Balanced Funds at Sanlam Investments; Nico Katzke, Head of Portfolio Solutions at Satrix*; and Kingsley Williams, Chief Investment Officer at Satrix, shared their perspectives on how this political shift could impact local markets. 

Williams said, “While South African investors have compelling opportunities in local bonds and equities, maintaining global diversification remains a crucial hedge against potential rand weakness in future. With strategic asset allocation determining over 90% of return variability, Satrix is focused on optimising these allocations as markets adjust to Trump’s potential new policies."

Market Implications of a Trump Victory

Aldrich shared that with Republicans controlling Congress and the White House, Trump will have significant leeway to enact his agenda. 

Sarkaria noted that the immediate market reaction has been positive, with increased risk appetite replacing uncertainty. US equity markets saw significant inflows, with over $43 billion added from Wednesday to Friday following the election. 

She said, “Exchange Traded Product (ETP) flows alone contributed $12.7 billion to US equity ETPs from 1 to 5 November, followed by $43.5 billion in the days after his re-election. Removing political uncertainty, even if replaced by protectionism and potential trade wars, was enough to drive a surge in investor confidence. Markets dislike unpredictability, and with a clear result, investors seemed ready to re-engage with riskier assets.”

She also discussed the broader implications of Trump's trade policies, including how potential tariff hikes could create long-term friction for emerging markets like South Africa that rely heavily on exports.

The Impact on South Africa

Focusing on how South Africa might navigate this new geopolitical landscape, Thomas expressed cautious optimism, emphasising that while Trump's focus on aggressive tariff policies could lead to challenges for emerging markets, South African bonds offered some insulation. “South African bonds currently provide an attractive return profile, offering indicative real returns of around 5% to 5.2%, which could draw in international investors seeking yield in a lower-interest-rate environment. These are comparable to long-term equity returns but come with significantly lower risk, making South African bonds a compelling option in the current environment.”

However, Thomas also raised concerns about the sustainability of South Africa’s current economic position. “With Trump's administration expected to lean heavily on protectionist policies, the ripple effect could dampen demand for South African exports, particularly commodities. This makes local diversification and a solid domestic economic policy framework crucial to weathering the potential storm.”

SA’s Long-Term Investment Strategy

Williams highlighted that Satrix recently concluded its biannual Strategic Asset Allocation (SAA) review, focusing on balancing local and international exposure to mitigate risks. “The review concluded by increasing the allocation to local nominal bonds, which have an attractive risk-return trade-off in a possible rate-cutting cycle. There’s also the very real possibility of structural tailwinds should improvements in local governance lead to increased demand for local bonds.”

He also noted that Satrix reduced exposure to locally listed property in favour of globally listed property to gain broader diversification. “While South Africa's local property market could benefit from a rate-cutting environment, the risks associated with concentrated exposure to local economic conditions made it a less attractive option than more globally diversified assets. The global listed property market, which also stands to benefit from reduced interest rates, provides more stable, diversified exposure.”

With Trump's focus on “America First” policies, South Africa may struggle to access international markets. However, as Williams noted, portfolio diversification, both geographically and across asset classes, can provide a buffer against these uncertainties. “Satrix believes in the power of long-term investing. By focusing on strategic allocations and maintaining a diversified portfolio, we can ensure our clients are well-positioned to weather whatever the future may hold. The message is clear for South African investors – focus on the fundamentals, diversify where possible, and stay attuned to local and global shifts.”

*Satrix is a division of Sanlam Investment Management

**Source: BlackRock and Markit, as of 12 November 2024

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