What Old Mutual is watching out for in 2025

Old Mutual is mainly concerned about the impact of the Trump presidency and potential tariffs on local markets, with the increased role of the private sector in the South African economy likely stock market returns. 

In an investment update for the fourth quarter of 2024, Old Mutual portfolio manager Jason Swartz outlined the events that significantly impacted markets in 2024 and what Old Mutual is keeping a closer eye on in 2025. 

As we move into 2025, Swartz said that the most important factor influencing prospects for local markets in the New Year will be the new Trump presidency and his highly anticipated tariff policies. 

The Trump administration’s policy implementation will be the most critical issue to watch in 2025, while next year will also be a critical period for local energy reform, with the energy crisis being far from over.

Trump’s widely publicised plans for increased global trade tariffs are a rising risk for local and global markets. 

“The inflation outlook is likely to worsen on this basis, causing a review in the Fed’s rate cutting cycle, given that they are unlikely to cut rates as much as previously expected as a consequence,” he explained. 

“While deregulation and tax cuts will be positive for US equities, a trade war escalation is not priced in and is likely to ultimately disrupt supply chains and impact global growth negatively.” 

In this environment, emerging markets are set to face headwinds in 2025 unless the dollar rally moderates and commodity prices recover. 

“However, South Africa is a haven among emerging markets, given our cyclical and secular growth drivers,” he said. 

When it comes to Operation Vulindlela (OV), he believes that significant progress is being made, which supports the case for a positive outlook on South Africa’s economy.

“Key tailwinds for the programme include a focus on depth, rather than breadth of reform, as well as political buy-in and collaboration between relevant stakeholders.”

Important successes of OV include the restructuring of Eskom and opening up of the entity for private investment in electricity generation, as well as logistics reform to allow private rail operators to access the freight rail network and operating ports.  

Water is also seeing tentative improvement in quality monitoring systems and the turnaround of the water use license system, while visa and digital communication reform are also seeing progress.

However, South Africa’s economic growth will largely be shaped by the future of South Africa’s energy sector, which, over the past sixteen years, has been dominated by escalating load-shedding. 

The country is now embarking on a path toward market deregulation, with the Energy Regulation Amendment Act of 2024 leading the charge.

Old Mutual’s Head of Responsible Investment Research, Tana Mongwe, said despite over 200 consecutive days without load shedding, the energy crisis is certainly not over.

“Through the Wholesale Market Code, due in 2026, this reform programme is set to reshape the energy market and presents both risks and opportunities for the future of energy in South Africa,” she said. 

“As we move into 2025, reform must be handled carefully to ensure that Eskom’s transition and the broader energy market changes do not undermine energy security.”

Mongwe emphasised that Eskom is too big to fail without causing substantial damage to the country’s energy security.

“Market deregulation is therefore essential for South Africa to secure clean, low-cost energy, particularly through the unbundling of Eskom’s generation, transmission, and distribution arms.” 

This will allow greater competition, innovation, and private-sector participation in the energy sector, with Eskom’s generation unit becoming one player among many.

However, she said fully incorporating Eskom into a free-market system would carry unacceptable social risks and costs. 

“While deregulation is necessary, Eskom’s strategic role in the market must be preserved,” she warned.

This responsibility for this lies with Nersa, which plays a critical role in ensuring Eskom’s survival. Without its support, Eskom may face collapse or require a substantial bailout. 

Mongwe pointed to the rise of competition in the distribution sector, particularly from private players, posing risks for both Eskom and municipalities.

“As private energy generation ramps up, Eskom should begin decommissioning its ageing power plants, making room for cleaner, more efficient technologies,” she said. 

“It is also crucial that tariffs for Eskom Generation and Distribution are unbundled, allowing for greater transparency and competition in pricing.”