Old Mutual Investment Group Chief Investment Officer Siboniso Nxumalo.
Image: Philippa Larkin/Independent Newspapers
As global markets on Tuesday braced for US President Donald Trump to unleash trade tariffs, Old Mutual Investment chief investment officer Siboniso Nxumalo and head of research Meryl Pick gave a presentation, 'Through the Looking Glass of Trump 2.0,' outlined the economic headwinds ahead.
Amid geopolitical turbulence and inflated US valuations, Nxumalo underscored the importance of diversification in one's investment portfolio as a safeguard against these risks.
Nxumalo drew a sharp contrast between Trump’s first term in 2016 and his return in 2024.
“In 2016, GDP growth, unemployment, inflation, and interest rates were all low,” he said. “Today, inflation is higher, interest rates are tenfold, and S&P 500 earnings expectations are lofty.”
He said Trump was a strategist who mixed populism with cost-cutting measures to address inefficiencies in a US economy under strain. He also described Trump as a businessman tackling systemic inefficiencies with a "CEO lens".
The US faces a significant structural deficit, with spending far exceeding revenue - a gap exacerbated by the Covid-19 pandemic. “This is unsustainable,” Nxumalo said, pointing to rising interest costs. With $9.2 trillion (R175trl) in debt set to mature in 2025, refinancing is a pressing concern, especially as 10-year bond yields have quadrupled since 2016.
Trump’s proposed tariffs, intended to boost revenue, align with historical precedents used back in the 1800s to raise revenue. Nxumalo explained how America has run out of fiscal room and this is one tool Trump has decided to use as a modern revenue tool, not just protectionism as many people label it as.
But Nxumalo warned that research ties tariff increases to declines in economic output, posing risks to global growth.
Meanwhile, alongside Trump's tariff strategy "DOGE as symbolic of cost-efficiency cuts fat from the system". The Department of Government Efficiency (DOGE) aims to recommend cuts in wasteful spending, reduce bureaucratic excess, and modernise federal technology and software systems.
However, South Africa, as an emerging market, remains particularly exposed. Nxumalo recalled the rand’s sharp decline following Trump’s 2016 victory, when it was among the hardest-hit currencies in a “risk-off” market shift.
“Fiscal fragility could spark volatility again,” he said, comparing South Africa’s position to that of peers like Brazil. While the rand has stabilised since March, ongoing geopolitical tensions and potential US policy changes could send shockwaves through emerging markets once more.
Pick addressed the African Growth and Opportunity Act (Agoa), which provides duty-free access to the US market, clarifying that its potential loss isn’t solely tied to Trump. “
Bipartisan unease over South Africa’s Russia ties predates this,” she said, referencing the 2023 Lady R scandal. Agoa’s scope has narrowed since its 2014 peak of 41 countries, with nations like Ethiopia already excluded. Although South Africa is a top Agoa exporter, only 10% of its US exports depend on the programme, and trade with China now overshadows its US ties. “GDP impact would be under 0.1%,” Pick estimated.
Both Nxumalo and Pick encouraged investors to look beyond US-centric portfolios. “Equities are priced for perfection,” Nxumalo said, noting that even the “Magnificent Seven” tech giants, like Tesla, have seen lacklustre quarter one earnings.
They both warned, "Beware the disappointment of great expectations."
Nxumalo and Pick recommended the following stocks amid this volatility:
BUSINESS REPORT