Top ten investment surprises of 2024
Investment returns in South Africa and globally have been remarkably strong in 2024 despite numerous headwinds from global conflicts, elevated interest rates, and political uncertainty.
These returns gloss over just how surprising many of 2024’s events were for investors, with external shocks buffeting local markets and global financial assets continuing to ‘melt up.’
Investors came into the year mainly concerned about the potential for a US recession and how central banks would approach their interest rate-cutting cycle.
Momentum Investments’ chief economist Sanisha Packirisamy and analyst Tshiamo Masike unpacked some of the most surprising events of 2024, diverting focus away from talks of a US recession and higher-for-longer interest rate cuts.
These surprises continue to influence financial markets today, with their effects potentially long-lasting as they signal fundamental changes to the investment landscape for 2025 and beyond.
Packirisamy and Masike curated their top ten surprises based on the impact they have had or will have on the South African economy. They are outlined in more detail below.
1. A hostile environment for incumbent political parties
In 2024, an unprecedented number of elections took place worldwide, with the most impact on local investors being in South Africa and the US.
While these elections took place in diverse settings, they all had one common theme – every governing party lost vote share.
From the Democrats in the US to Britain’s Conservatives, Emmanuel Macron’s Ensemble coalition in France to Japan’s Liberal Democrats, and even Narendra Modi’s once-dominant Bharatiya Janata Party, governing parties faced electoral defeats of historic proportions.
This unprecedented phenomenon marks a watershed moment in electoral history, the likes of which have not been seen in nearly 120 years.
Such widespread discontent signals a profound shift in the political landscape as voters increasingly hold their leaders accountable for both domestic challenges and global uncertainties.
Growing disillusionment with centrist policies has nudged voters toward more radical alternatives. This comes as as many perceive centrist governments as inadequate in confronting pressing challenges like inflation, inequality, and social justice.
2. Trump’s historic return
Trump’s victory in the US presidential election itself did not surprise Momentum. Rather, the dominant nature of his win is what caught the asset manager off guard.
Particularly, Trump’s gains among traditionally Democrat voter bases indicated a potential realignment of US politics going into the future. It also indicates a shift to the economy, which is becoming the most important issue for American voters once again.
As inflation and stagnant wages weighed heavily on families, Trump’s focus on job creation and tax cuts resonated deeply, enabling him to successfully court apolitical voters during the election campaign.
Unlike his initial administration, where he occasionally appointed officials who opposed him, this time, he is expected to surround himself entirely with allies committed to his “Make America Great Again” vision, Packirisamy and Masike said.
With Republican dominance in both chambers of Congress, Trump will be able to advance his policies on immigration, taxes, deregulation and foreign affairs with minimal opposition.
Trump’s fiscal strategies could lead to unsustainable deficits and higher bond yields, potentially crowding out private investment and stifling economic growth while intensifying inflationary pressures.
This scenario could culminate in stagflation – characterised by stagnant growth and elevated inflation rates.
3. Reshaped interest rate expectations
Following Trump’s election victory, financial markets have had to recalibrate their expectations regarding interest rate cuts in the coming year.
Initially, analysts anticipated a series of gradual rate cuts as the US Federal Reserve (Fed) aimed to stabilise the economy amid easing inflation and a cooling labour market.
However, with Trump back in power and his proposed economic policies on the table, these expectations have shifted towards a more cautious outlook.
Concerns about inflation have intensified, leading to the potential for higher terminal rates, as Trump’s agenda – including substantial tax cuts and tariffs – could stoke price pressures and complicate the Fed’s path forward.
With the US Fed being the most influential central bank globally, this will have a knock-on effect for other central banks, including the South African Reserve Bank.
Central banks are largely expected to follow the Fed’s path and be more cautious about cutting interest rates in 2025.
4. The Bank of Japan hiking rates and the August correction
August 2024 witnessed a significant correction in global financial markets, largely fuelled by the unwinding of the Japanese yen carry trade alongside intensifying geopolitical tensions, particularly in Eastern Europe and the Middle East.
The carry trade strategy, which entails borrowing in low-interest-rate currencies like the yen to invest in assets with a higher return, had gained traction among investors.
However, as the Bank of Japan (BoJ) began to raise interest rates for the first time in 17 years, sending the yen stronger, investors swiftly recalibrated their positions.
The hiking of interest rates by the BoJ’s signalled a shift away from its long-held policies of loose monetary policy, pushing investors to liquidate their yen-denominated investments.
This unwinding process heightened market volatility, further complicated by fears surrounding a weakening US labour market and rising geopolitical uncertainties.
As a result, financial assets around the world plummeted until the BoJ reversed its decision to cut interest rates.
5. China’s stimulus measures
In stark contrast to the tightening monetary policies adopted by much of the world amid rising inflation and wage growth during 2022 and 2023, China has grappled with persistent deflationary pressures.
The People’s Bank of China (PBoC) has responded with aggressive monetary easing, deploying interest rate cuts and liquidity injections to stimulate demand.
Despite ongoing weaknesses in domestic consumption and a struggling property market, China’s export sector has demonstrated remarkable resilience. In 2024, exports have soared on the back of strong demand and competitive pricing strategies.
The nature of the PBoC’s stimulus can be characterised more as a stabilisation effort than a comprehensive program akin to past large-scale initiatives.
These measures are crucial for alleviating financial pressures on local governments, allowing them to settle overdue wages and pay suppliers.
By easing the debt burden on local government, the stimulus aims to stabilise public services and uphold employment levels, which are vital for sustaining consumer confidence.
The consumer confidence index nevertheless continues to languish, indicating that even with reduced borrowing costs, households are opting to save rather than spend.
Long-term solutions require structural reforms that increase household income relative to overall GDP.
6. South Africa’s load-shedding crisis has come to an end
The end of load-shedding has come as a surprise to many, primarily due to the rapid rollout of the Energy Action Plan launched by President Cyril Ramaphosa in July 2022.
This ambitious strategy sought to resolve the long-standing issues afflicting Eskom, SA’s state-owned power utility.
Central to the plan were initiatives to repair ageing power stations, increase private investment in generation capacity and accelerate the procurement of renewable energy sources
These reforms have resulted in a notable improvement in Eskom’s Energy Availability Factor (EAF) – a vital indicator of power generation reliability – stabilising at approximately 55% for much of the year.
A pivotal element in this turnaround has been the effective execution of Eskom’s Generation Operational Recovery Plan, which targets reductions in unplanned outages.
Initially, the Reserve Bank estimated in April 2023 that load-shedding would reduce GDP growth by 0.8% in 2024.
However, as improvements in energy supply became apparent and load-shedding diminished, it revised this estimate downward to 0.5% by October 2024, reflecting a more optimistic outlook.
7. The formation of the GNU
South Africa’s political landscape underwent a seismic shift in 2024, marking the first time since the end of apartheid that the ANC lost its majority.
In the May elections, the ANC’s support plummeted to 40.2%, down from 57.5% in 2019, leading to the loss of 71 seats and leaving it with only 159 in the National Assembly.
The DA capitalised on this decline, increasing its share to 21.8% and securing 87 seats. Meanwhile, the new MK Party emerged as a significant player, winning 58 seats and 14.6% of the vote.
The new MK Party, founded in 2023 and backed by former President Jacob Zuma, garnered support through its appeal to Zulu nationalism and promises to address economic inequality and poor service delivery.
By June 2024, ten political parties joined forces to form a Government of National Unity, collectively holding 71.8% of the National Assembly seats, ushering in an era of coalition politics.
This maturation of SA’s political environment has facilitated collaboration across ideological lines to address pressing national issues.
8. New legislation
South Africa witnessed significant legislative advancements in 2024, highlighted by President Cyril Ramaphosa’s unexpected signing of the National Health Insurance (NHI) Bill into law on May 15.
The NHI aims to provide universal health coverage, addressing historical healthcare disparities despite concerns over financial sustainability and public facility readiness, with fewer than 40% meeting compliance standards.
Alongside the NHI, key bills targeting socioeconomic challenges were introduced, such as the Economic Regulation of Transport Bill, the National Water Resources Infrastructure Agency Bill, and the Electricity Regulation Amendment Act.
The Pension Funds Amendment Bill, effective in September, implemented a two-pot retirement system allowing early access to savings, which critics argue could undermine long-term financial security.
Similarly, the Land Reform Bill faced scepticism over its feasibility, with fears of ineffective land use due to inadequate support systems.
Collectively, these legislative efforts reflect a push to address deep-rooted inequalities and infrastructure gaps, though not without controversy.
9. Renewed debate over the Reserve Bank’s inflation target
In 2024, South Africa experienced a significant easing of inflation pressures, with food and fuel prices dropping sharply from previous highs of 14.4% and 56% to 2.8% and -19% by October.
This contributed to an October headline inflation rate of 2.8%, sparking discussions about adjusting the inflation target closer to 3%.
Despite this progress, persistent inflation in sectors such as medical costs (averaging 9.2% since 2009), electricity (11.9%), and water (7.9%) continues to pose challenges.
These pressures suggest a potential need for tighter monetary policy to address demand-pull inflation.
A Reserve Bank study indicated there would be minimal economic output loss in achieving price stability at a lower rate.
10. Vote of confidence for South Africa
South Africa’s economic outlook received a boost on November 15, 2024, when S&P Global upgraded its rating from stable to positive, leading to a strengthening of the rand as markets had not fully anticipated the move.
The upgrade reflects progress in governance, economic reforms, and efforts to attract private investment under the GNU.
Key factors included upwardly revised GDP growth expectations to 1.4% (from 1%), bolstered by two-pot withdrawals, declining inflation, lower interest rates, and increased investor confidence.
S&P highlighted the potential for a further sovereign rating upgrade within a year, suggesting a one-in-three chance of an upgrade to the country’s sovereign rating of BB-.
This is contingent upon sustained reform momentum, particularly in logistics and effective management of medium-term fiscal pressures.
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