INVESTMENT MARKET UPDATE

JANUARY 2025

What developments have unfolded in local and global markets throughout the month of JANUARY?

25 bps

SARB interest rate cut in January

+9.9%

Euro STOXX 50 return over January in EUR


3.0% YoY

SA Headline inflation in December

GLOBAL MARKET

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Global equities kicked off 2025 on a positive note, largely driven by gains in European markets.

The strong rebound in European stocks was fueled by impressive earnings in the luxury sector. Meanwhile, across the Atlantic, America’s leading tech stocks weighed on the broader market following the release of China’s DeepSeek R1 AI model. However, stronger-than-expected US economic growth, coupled with policy uncertainty, has strengthened the dollar and pushed bond yields higher.

China reported a GDP growth of 5% for 2024, aligning with Beijing’s target. December’s industrial production and retail sales exceeded expectations, yet China’s economic outlook remains uncertain due to the risk of US-imposed tariffs.

The Federal Reserve maintained interest rates at 4.25%–4.5%, pausing further cuts to evaluate inflation trends and economic conditions. This unanimous decision follows a full percentage point reduction since the US began easing monetary policy in September. Notably, the Fed’s statement adopted a more hawkish tone, removing previous references to inflation progress and instead describing it as “somewhat elevated,” while also noting that unemployment has “stabilized at a low level.” These adjustments suggest potential delays in future rate cuts.

In the Eurozone, weak inflation and slowing growth justified a 25-basis-point rate cut, with additional reductions expected in the coming months. However, as the European Central Bank nears a neutral policy stance, future rate decisions could become more contentious.

Meanwhile, Donald Trump returns to the White House with tariffs as a key priority. He acknowledges that Americans may face short-term economic discomfort but believes the long-term benefits will outweigh the immediate challenges. The administration is prioritizing an “America First” approach, emphasizing self-sufficiency and boosting domestic manufacturing.

ANALYTICS - COMMENTARY FOR JANUARY:

SMARTIE BOX IN RANDS:

LOCAL MARKETS

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SA – US tensions rise as SARB cuts interest rates.

The South African Reserve Bank (SARB) reduced interest rates by 25 basis points for the third consecutive meeting in January, bringing the repo rate down to 7.50%. However, further cuts before the end of 2025 seem unlikely unless market reactions to the Trump administration’s tariff measures begin to stabilize. Financial markets are expected to face heightened volatility, diminishing risk appetite and putting pressure on emerging market investments like South Africa. A turbulent period for the rand (ZAR) could disrupt the SARB’s efforts to contain inflation, leading to a more cautious monetary policy approach in the months ahead.

Inflation data came in softer than anticipated. Headline consumer inflation edged up from 2.9% year-on-year in November to 3.0% in December, below market expectations of 3.2%. However, concerns remain as NERSA has approved a 12.7% electricity tariff hike for 2025–26, which could drive inflation higher in the coming months.

South Africa has also found itself in President Trump’s crosshairs, with an executive order cutting all US aid to the country due to its controversial land reform policies. Signed off by President Ramaphosa, this move signals growing tensions and may influence foreign perceptions of South Africa’s political stance—particularly in relation to Russia and Palestine.

Despite these challenges, the resources sector emerged as a bright spot, lifting the broader market into positive territory. As gold and platinum prices surged and the rand weakened, resource stocks saw significant gains. Meanwhile, financials and industrials ended lower, while local bonds managed to edge into positive territory after a volatile month.

 

  • The JSE All Share Index kicked off the year with a strong showing, up 2.3% for the month.
  • Resources (up 16.3%) were the star of the show, while Industrials inched higher (up 0.5%) and Financials (down 2.9%) dropped sharply.
  • Small-caps (down 4.6%) retreated, while Mid-caps (up 0.7%) and Large-caps (up 3.3%) climbed into positive territory.
  • Property had a tough month, as both the S&P SA REIT sector (down 4.1%) and the SA Listed Property sector (down 2.3%) plunged below the zero line.
  • SA Nominal Bonds (up 0.4%) crept higher over the month, as Inflation Linked Bonds (down 0.3%) saw a slight decrease.
  • Developed Market Equities and Emerging Market each had positive months. However, in US Dollar terms it was the developed markets which came out ahead, with the MSCI World Index up 3.6% and the MSCI Emerging Market Index up 1.8%.
  • The rand had a poor start to the year. Relative to the US Dollar (Rand depreciated 1.1%), the Euro (Rand depreciated 0.7%) and the Pound Sterling (Rand depreciated 1.8%).
  • Commodity prices boasted exceptional growth last month. Gold (up 7.0%), Platinum (up 15.6%) and Brent Crude (up 2.8%).

2025 ASSET MANAGER PREDICTIONS

MONTHLY RETURNS: