Introduction:

Contrasting economic and political developments. In South Africa, a proposed VAT increase is causing political tensions within the governing coalition, while globally, revised trade forecasts and US tariff policies are creating market volatility and affecting various sectors. These global uncertainties and the weakening dollar are, however, benefiting South African precious metal producers.

Key takeaways from sources:

South Africa’s Stock Market and Currency: South Africa’s benchmark stock index is performing strongly, reaching a record close, primarily driven by the surging gold price boosting shares of precious metals miners. This performance has helped the index recover from a previous slide following US President Trump’s announcement of reciprocal tariffs. In dollar terms, the South African gauge has significantly outperformed both the MSCI Emerging Market stock index and the S&P 500 this year. However, the South African rand is under pressure due to global trade uncertainties and domestic political issues.
Precious Metals Benefiting from Global Uncertainty: The price of gold has hit a fresh high due to haven demand as the US dollar has fallen and tech stocks have slumped following new US restrictions on chip exports to China. This “flight to safety” is benefiting South African gold miners, whose subindex has climbed to an all-time high. Companies like Harmony Gold Mining, AngloGold Ashanti, and Gold Fields have seen significant share price increases. The weakening dollar has also boosted spot prices for other commodities, including platinum-group metals, benefiting South African platinum miners such as Impala Platinum and Sibanye Stillwater. Scotia Capital anticipates that South African precious-metal producers could see increased returns in the coming months, with a potentially significant rise in return on invested capital by 2025 if gold prices remain high.
US-China Trade Tensions and Chip Export Restrictions: New restrictions imposed by the Trump administration on Nvidia’s chip exports to China are deepening trade tensions and causing significant market reactions. Nvidia expects to face substantial charges due to these restrictions, making it a major casualty of the trade war. This has led to a decline in Wall Street’s main indexes, with chipmakers leading the losses. Global chip stocks have broadly suffered due to the uncertainty surrounding US trade policy. Investors are expected to remain cautious about technology companies until the implications of these export rules become clearer.
Broader Impact of US Trade Policy: Beyond chip exports, President Trump has also ordered an investigation into potential new tariffs on all critical minerals imports. His previous and potential future tariff actions are contributing to a slowdown in global economic growth and increased uncertainty. The WTO has sharply cut its forecast for global merchandise trade in 2025, now anticipating a decline due to US tariffs and their spillover effects, which could result in the steepest drop since the COVID-19 pandemic. UNCTAD also foresees a slowing of global economic growth due to trade tensions.
US Dollar Weakness: The US dollar has resumed its decline, losing ground against major currencies like the Swiss franc and the euro, as tariff-induced nerves grip markets. The dollar’s weakness is attributed to shaken confidence in the US due to recent trade policy developments. The Swiss franc, in particular, has appreciated significantly since the announcement of tariffs.
South African Fiscal Policy and Political Tensions: South Africa’s Finance Minister Enoch Godongwana believes a proposed 0.5 percentage point increase in the VAT rate is essential and has no alternatives, leading to a budget impasse that threatens the governing coalition. The DA, a key partner in the coalition, opposes the VAT hike and has filed a lawsuit to block its implementation. This disagreement has raised concerns about the stability of the government and put pressure on the rand. Scrapping the VAT increase would create a substantial gap in the budget. The ANC is attempting to secure support for the budget from other parties and hopes the DA will eventually agree to the VAT increase.
South African Reserve Bank’s Stance: Economists at Nedbank anticipate no further interest rate cuts in South Africa in 2025 due to the economic chaos brought about by US President Trump’s global trade war. The SARB is expected to keep interest rates on hold for the remainder of the year due to heightened global uncertainty and concerns about the potential impact of trade wars on the rand and inflation. Previous expectations of interest rate cuts have been negated by the current economic uncertainty. The Fed’s monetary policy decisions and the performance of the US economy will significantly influence the SARB’s future actions.

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Sources referenced:

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