Biggest threats to South African investors in 2025

The most significant threats to returns from South African assets in 2025 come from outside the country. Uncertainty regarding what a Trump presidency entails and heightened geopolitical tension threatens to derail momentum from a strong 2024. 

There is also a lingering possibility that the current positive environment in the South African economy and financial markets may not last as long as many expect. 

This is feedback from Momentum Investments’ head of asset allocation, Herman van Papendorp, who outlined the asset manager’s expectations for 2025 in a recent research note. 

The main threat is the uncertainty regarding whether President-elect Trump would be able to implement all his desired policies. 

Van Papendorp said the magnitude and timing of various proposals on tariffs, immigration, deregulation, and tax relief increase the risk of positive or negative policy surprises. 

This may lead to elevated volatility throughout 2025 and negatively impact riskier assets, such as South African stocks and bonds, as investors search for stability and a safe haven. 

Volatility, for once, may also benefit South African assets as, given recent political reform and the formation of the Government of National Unity (GNU), the country may be seen as an island of stability among volatile emerging markets. 

One thing appears to be certain about Trump’s policies: They will ignite inflation and potentially force central banks to react by raising interest rates. 

It would be a negative surprise to economies and markets should inflation rise high enough to force central banks to abandon their current declining interest rate paths in favour of renewed rising rate cycles. 

It would be even more detrimental to financial markets should higher-than-expected inflation combine with downside economic growth surprises in the coming year. 

Trade wars would exacerbate any negative global growth impact and ultimately could bring recessionary outcomes into play again.

Further escalation of the Russia-Ukraine conflict or the Middle East crisis remain significant global risks for 2025, with potential knock-on effects for inflation and interest rates. 

Other geopolitical challenges that could impact the year include a potential increase in China’s assertiveness regarding Taiwan, heightened military and economic tensions between the US and China and more severe provocations from North Korea. 

In a geopolitically uncertain global environment, gold is expected to maintain its strategic importance in central banks’ and investment portfolios as a natural portfolio diversifier and risk-mitigating asset. 

Emerging market central banks that are likely to bear the brunt of US protectionist policies during the Trump regime can be expected to continue diversifying their reserves away from US dollar assets by increasing their gold exposure.

The central banks of Russia, China, and India have been some of the largest buyers of gold in 2024 as they look to reduce their reliance on the US dollar as a reserve currency. 

It is important to note that this does not mean the dollar is losing its dominance as the currency in which global trade is conducted, but rather that its status as a reserve asset is being challenged by gold and other ‘hard’ assets. 

There are also potential risks to the longevity of the current positive environment in the SA economy and financial markets. 

Paramount among these would be threats to the survival of the coalition GNU. This would derail expectations that a higher local growth outcome would be forthcoming from more aggressive policy reform implementation in the coming years. 

Other critical domestic risks that need to be monitored are South Africa’s crumbling water infrastructure, transport sector deficiencies and local government mismanagement. 

Insufficient progress in addressing these issues would keep South Africa’s country risk premium at elevated levels, thus increasing the cost of capital in the country.