Meryl Pick, Head of Equities, and Siboniso Nxumalo, Chief Investment Officer, at Old Mutual Investment Group

With the announcement of reciprocal tariffs that affect all major US trading partners, including South Africa, concerns are mounting over the future of the country’s inclusion in the African Growth and Opportunity Act (Agoa). However, Old Mutual Investment Group believes that exclusion from the treaty may not be as catastrophic as many believe, with the treaty becoming far less relevant for our local economy today, than when it first began.

This was one of the views shared at the asset manager’s Quarterly investment update this week, where Head of Equities Research, Meryl Pick, highlighted that, while the US was South Africa’s largest trading partner when Agoa first launched, the US lost that status in 2009 and trade between South Africa and China now exceeds that of the US.

“So, while being excluded from the agreement would be bad for sentiment, our research shows that the actual impact on GDP would be quite low, probably less than 0.1% of GDP, with only about 10% of our total exports to the US falling under Agoa provisions,” says Pick.

The Trump administration has flagged SA legislation and policies, including the Expropriation Act and the Public Procurement Act, as barriers to US investment and trade in the country.

Pick adds that the risk of South Africa being excluded from Agoa is not strictly Trump-administration driven. “I view SA’s possible Agoa exclusion as having been revisited under the Trump administration rather than instigated by it. If you cast your mind back to last year, there have been ongoing discussions, including in the US Senate, about US discomfort with issues such as SA’s ties to Russia, reaching crisis levels with the Lady R diplomatic spat,” she points out. “We have also seen other fast-growing African countries such as Ethiopia and Uganda excluded from the agreement, since its inception. So, this is not only a South African risk.”

Also presenting at the briefing, Old Mutual Investment Group Chief Investment Officer Siboniso Nxumalo pointed out that, with Trump 2.0 in full swing, there are currently more headwinds than tailwinds in global markets, as geopolitical uncertainty, inflation persistence and fiscal fragility continue to dominate.

“The US, in particular, is facing structural shifts, with the business cycle maturing. This is introducing some interesting risks,” explains Nxumalo. “This time around we have ‘Trump the Strategist’, as he walks a tightrope between populism and pragmatism. Ultimately, he is using an ancient playbook not seen in more than 100 years when it comes to sourcing revenue.”

Global investment challenges such as trade tariffs, global debt, de-globalisation and sticky inflation levels are all problems that the world hasn’t collectively faced since the 1940s, and which create an environment that investors are struggling to understand.

“Trump’s trade tariff policy is about more than just protectionism, he is using tariffs as a key revenue tool, with Elon’s Musk’s Department of Government Efficiencies (DOGE) symbolic of cost-efficiency. However, the implications for US and global economic growth are alarming,” he added. “But if you set aside all the noise around the disbanding of USaid and US defence support for Europe, ultimately he has no choice given the size of the fiscal deficit.”

The US’s burgeoning debt deficit is coupled with higher interest rates, which makes further borrowing a huge challenge.

Pick emphasised that what we are inevitably seeing from the Trump administration is a reorientation of revenue through trade tariffs, rather than the introduction of new revenue. “History has shown us that tariffs have a negative impact on global growth. Unfortunately, Trump doesn’t seem to care about their growth implications; he is focused on fixing the US fiscus regardless of the negative consequences over the short- to medium-term,” she said.

The problem for investors is that, unlike his first presidency, Trump also appears unconcerned with the impact on the US stock market, being more pre-occupied with US 10-year government bonds. “The reason behind this lies in the $9.2 trillion of US debt will either mature or need to be refinanced in 2025,” Nxumalo explains. Given higher interest rates, the US government does not want to refinance their debt with long-term paper. This makes the stock market a low priority at this point, considering that lowering the yield on 10-year bonds is a far more urgent incentive.”

Nxumalo adds that Trump’s presidency is starting off with lofty expectations, when it comes to US equities. “If we look at US presidents throughout history, when a president starts off at these stock market levels, the prospective returns are not generally promising; this worries us. Compounding this concern is that US equities are currently priced for perfection, with multiples stretched, and the “Magnificent 7” tech giants are no longer surpassing expectations. These great expectations are setting markets up for further disappointment,” he warns.

Looking at local equity markets, Pick highlights that it is important to distinguish the SA economy from the local stock market. “Although we are an emerging market, we have access to a wide range of global high-quality businesses that trade on the JSE, with 60% of JSE companies’ revenue actually earned offshore. Over the past 20 years, domestic stocks have actually done very little, with global stocks such as Naspers, Richmond, Bidcorp etc driving JSE performance. This is where we’re continuing to look for opportunities in our market.”

She adds that the OMIG team are continuing to find stock ideas that reflect their current convictions, such as Naspers/Prosus that provides affordable access to the Chinese tech sector and has unlocked value through simplification. “Anheuser-Busch InBev is another stock we like in the current environment, offering a story of margin recovery and global scale, as well, while Bidcorp, a highly decentralised global food services group with localised supply chains, offers resilient earnings while not being exposed to the US.”

ENDS