A Bull in a China Shop

With the inauguration of President Donald Trump in January we have witnessed the dawn of a new era in US and global politics.  Supported by a Republican majority in both the House of Representatives and the US Senate, President Trump has thrown the diplomacy of modern politics to the wind in pursuit of delivering on his campaign promises.  He has not shied away from upsetting the country’s closest neighbours, allies and trading partners in his implementation of ‘America First’ policies, flexing the strength of the American economy to make the rest of the world clearly aware of how dependent they have become on maintaining good standing with the United States.

A mere two weeks on the job, he announced that significant tariffs would be imposed on imports from Canada and Mexico, for reasons not directly related to trade, but rather attributed to inadequate border control and the resulting illegal immigration and drug trafficking into the United States.  These tariffs were postponed shortly before being implemented, as the leaders of both neighbouring countries agreed to engage in conversation with the US government to address the underlying issues.  This begs the question: to what extent is the billionaire businessman and author of The Art of the Deal implementing government policy with businesslike negotiation techniques at his new desk in the Oval Office?

Furthermore, the strong American bull market, largely driven by advances in technology and artificial intelligence, has greatly strengthened the US economy.  The growth of the so-called Fourth Industrial Revolution has largely been concentrated in a handful of American companies, resulting in the US market accounting for over 50% of the global market’s value by the end of 2024^[1].  This puts immense weight behind the contentious threats and actions of the president, leaving even the developed world cautious about what some fear is a cowboy on the back of an ever-strengthening bull.

While this may be celebrated by the ‘Make America Great Again’ ideology, if we look through the lens of the rest of the world, we see a great deal of trepidation. Emerging markets, in particular, have become acutely aware of their porcelain-like fragility in the presence of the new America, knowing that upsetting the White House could easily provoke knee-jerk reactions, potentially fracturing their economies.

Yet while many countries fear they need to stay in America’s good books, President Trump has abandoned the status quo of subtlety in international relations.  A good example of this is the brazen ‘Riviera of the Middle East’ solution to the highly intricate and historically complex Middle Eastern crisis, in which President Trump suggested relocating the entire population of the Gaza Strip to neighbouring countries and establishing a thriving economic hub and tourist destination.  Although at first this seemed ridiculously far-fetched, at the time of writing, this was still an option considered by Israel and the US.

Similarly, in South Africa, we have become accustomed to the world being very delicate in its commentary on our domestic policies given our complex past and often strained racial relations.  It thus came as a shock when President Trump cast us in the international limelight following President Ramaphosa signing the controversial Expropriation Bill.  This, along with South Africa’s reputation for showing support for enemies of the United States, including Hamas and Russia, has cast a shadow of uncertainty over the future of American funding, capital investment, and trade.  South Africa finds itself at a crossroads where the government must decide whether they want a very powerful friend or foe.

What does this mean for the South African investor?

Firstly, America is big, strong and growing.  Ample opportunity has been created by President Trump’s ‘America First’ policies and his commitment to deregulation and lower taxation, fostering a business-friendly environment.  Additionally, we are seeing the adoption of artificial intelligence starting to change the face of multiple industries in the pursuit of greater efficiency and productivity.

Secondly, uncertainty creates opportunity. Countries that are willing to ‘play ball’ with America will undoubtedly become some of the economic winners of the near future, as all past trade relationships appear to be open to renegotiation.

Lastly, survivors adapt to survive.  Shocks and disruptions are nothing new to global politics or financial markets.  Good companies, with strong management and great business models, are measured not in their performance when everything goes right, but in their ability to adapt to the opportunities and challenges they face.  Current market conditions in South Africa and abroad create an environment where a lot of bad news and negative investor sentiment drives down prices of top-quality companies, creating an ideal entry point for the long-term investor.

– Kobus Jansen van Vuuren

26 Feb 2025

 

[1] Isabel Wang, “U.S. stocks dominated global markets in 2024 – why they likely won’t in 2025,” Morningstar, Dow Jones MarketWatch, 7 Jan 2025, https://www.morningstar.com/news/marketwatch/2025010736/us-stocks-dominated-global-markets-in-2024-why-they-likely-wont-in-2025.