International
In the first quarter of 2025, global markets showed stark differences in performance, driven by varying regional conditions and policy actions. The US market faced challenges due to rising trade tensions, persistent inflation worries, and a decline in the dominance of major tech companies. Increased uncertainty and market volatility, largely driven by the unpredictable direction of US trade policy, have lowered growth expectations and put pressure on both US markets and the dollar. The beginning of Trump’s new term has been marked by turbulence, with investors grappling to understand how new regulations might affect asset prices and the broader economy. Emerging markets generally outpaced developed ones, supported by favourable policy developments, strong commodity prices, and improving investor sentiment in key areas like China, Brazil, and Central Europe. Emerging markets, represented by the MSCI Emerging Market Index, posted a quarterly gain of 2.9%, outperforming developed markets, which recorded a decline of 1.8% as measured by the MSCI World Index.
In the US, inflation fell by a seasonally adjusted 0.1% in March, putting the 12-month inflation rate at 2.4%, down from 2.8% in February. Excluding food and energy, so-called core inflation ran at a 2.8% annual rate, having increased 0.1% for the month. That was the lowest rate for core inflation since March 2021. Wall Street had been looking for headline inflation of 2.6% and core inflation at 3.0%. However, market observers believe this decrease is temporary, as long-term inflation expectations continued to rise. During the quarter, the Federal Reserve chose to keep interest rates unchanged as it awaits clearer signs that inflation is consistently trending toward its 2.0% target. Economic growth across most major economies slowed significantly, influenced by ongoing uncertainty around global trade policies and volatile market conditions. In the US, the economy lost momentum, with GDP expanding at an annual rate of 2.4% from October to December, a drop from the 3.1% growth recorded in the previous quarter.
European markets started the year on a strong note, posting solid gains in the first quarter. Investor sentiment was boosted by expectations of fiscal stimulus in Germany and rising defence spending across the continent. Europe emerged as one of the top-performing regions globally, significantly outperforming the US. Confidence in the economic uplift from infrastructure and defence investment helped offset worries about potential challenges for European industries stemming from US import tariffs. Additionally, the political stability following Germany’s elections improved investor confidence, helping the DAX post impressive gains of 11.3%. France’s CAC 40 also performed well, delivering a solid return of 5.7%. Banks were particularly strong, as were defence stocks, given the anticipated uptick in domestic production.
Inflation in the eurozone continued its downward trend in March, with the Consumer Price Index (CPI) easing to 2.2%, in line with expectations and down slightly from 2.3% in February. Core inflation, which excludes volatile components such as food, energy, alcohol, and tobacco, also declined, falling to 2.4% from 2.6% the previous month. Notably, services inflation, which had remained persistently high around the 4.0% level, dropped to 3.4% in March from 3.7% in February, indicating a broader softening in price pressures. The European Central Bank (ECB) responded by cutting interest rates by 25 basis points to 2.5%, suggesting the possibility of further rate reductions. At the same time, the ECB downgraded its economic growth forecast for the fourth time in a row, now expecting growth of just 0.9% for 2025.
UK markets also posted gains over the quarter, led by strong performances from large-cap banks and defence companies. However, sentiment toward UK small- and mid-cap stocks remained subdued, weighed down by persistent concerns over the domestic economic outlook, particularly in consumer-facing sectors. In light of escalating security concerns in Europe, Prime Minister Starmer committed to raising defence spending to 2.5% of GDP by 2027. This announcement sparked renewed worries about the sustainability of the UK’s fiscal position. To address these concerns and demonstrate fiscal discipline, Labour Chancellor Rachel Reeves unveiled a £4.8 billion reduction in welfare spending alongside a crackdown on tax avoidance, aiming to ensure compliance with the government’s fiscal rules. On the monetary policy front, the Bank of England reduced interest rates by 25 basis points in February, marking a shift in its approach amid signs of easing inflation. The UK’s annual inflation rate declined to 2.6% in March, beating analysts’ expectations of 2.7% and easing from 2.8% in February. The FTSE All-Share Index hit an all-time high and returned 6.1% for the quarter. Large cap financials, energy and healthcare sectors benefited in line with European equities more broadly as global investors rotated away from richly valued US technology stocks.
U.S. equities faced significant headwinds due to political uncertainty and growing economic concerns, resulting in the S&P 500 having its worst quarterly performance in three years. The tipping point in an already turbulent period came with President Trump’s announcement of broad new tariffs, referred to as the ‘Liberation Day’ duties. Escalating trade tensions, particularly with China, triggered fears of a renewed trade war, which weighed heavily on investor sentiment. Industries most exposed to tariffs such as manufacturing, technology, and consumer goods suffered significant losses, with companies heavily dependent on global supply chains seeing notable drops in their share prices. The ongoing ambiguity surrounding trade policy dampened corporate earnings projections and raised concerns about a broader economic slowdown, reinforcing a cautious stance toward U.S. equities throughout the quarter. Meanwhile, cracks began to show in the dominance of the so-called “Magnificent 7,” as the emergence of China’s budget-friendly AI model, DeepSeek, coupled with increasing worries over the group’s stretched valuations, took a toll. The combination of these factors and escalating trade tensions contributed to a difficult quarter for the group, which declined by 15%, with Tesla, Apple, and Nvidia leading the downturn. U.S. equity markets closed the quarter in negative territory, with the NASDAQ posting the steepest loss at -10.3%, followed by the S&P 500 down 4.3%, and the Dow Jones showing a more modest decline of 0.9%.
Global bonds edged higher over the quarter, with the Bloomberg Global Aggregate Index gaining 2.6% during the quarter. Central banks, however, remained cautious about cutting interest rates amid ongoing economic and geopolitical uncertainty. US Treasuries outperformed, rising 3.0%, with the 10-year yield ending lower at 4.2%, while U.S. corporate bonds gained 2.4%, outpacing their European and UK counterparts. In contrast, German bund prices dropped 1.8% as the Bundestag’s approval to reform the ‘debt brake’ following Friedrich Merz’s CDU-CSU victory raised prospects of increased defence spending, pushing bund yields above 2.7% and narrowing yield spreads across Europe. French and Italian government bonds also declined. Meanwhile, UK gilts saw a modest price rise but underperformed Treasuries, with the 10-year gilt yield edging up from 4.6% to 4.7%. Additionally, concerns over Trump’s proposed tariffs prompted the European Central Bank to lower its regional growth forecasts, creating further headwinds for European bonds.
Japan’s stock market declined in the first quarter of 2025 in local currency terms, as a stronger yen and concerns over global economic growth dampened investor sentiment. However, the yen’s appreciation boosted returns for international investors converting profits back to their home currencies. The yen’s strength was largely driven by diverging interest rate trends: while central banks in many major economies began cutting rates in response to slowing growth, the Bank of Japan raised its key rate by 0.25% to 0.5% in January and signalled more hikes ahead. This policy shift is seen as a sign that Japan is moving beyond deflationary risks, with rising wages expected to support continued inflation. Economic data released during the period also revealed unexpectedly strong performance in the final quarter of 2024, with annualized GDP growth of 2.2%. The Nikkei was down 9.9% for the quarter.
China’s equity markets delivered a strong performance in the first quarter of 2025. This rally was driven by renewed investor optimism following the surprise launch of China’s low-cost AI model, DeepSeek, in late January, which ignited a rally in technology stocks despite ongoing concerns over global tariffs. Notably, a symposium hosted by President Xi with prominent technology industry figures, including Jack Ma, signalled a potential easing of regulatory scrutiny on the private sector. Further boosting sentiment were government stimulus measures aimed at increasing domestic consumption, which were welcomed by the market. On the economic front, consumer price inflation slid 0.1% year on year in March, remaining in deflationary territory after having contracted 0.7% in February. Economists polled by Reuters had expected a flat reading compared to the same period last year. Core inflation, which strips out volatile food and fuel prices, rose 0.5%, rebounding from a drop of 0.1% in February, though still lower than the 0.6% growth in January. In line with expectations, the People’s Bank of China (PBOC) held its key lending rates steady, maintaining the one-year Loan Prime Rate (LPR) at 3.1% and the five-year LPR at 3.6%. Both manufacturing and services PMIs improved, and policy signals from the National People’s Congress reaffirmed a 5.0% GDP growth target and modest fiscal support. The Hang Seng delivered a strong 16.1% for the first quarter, while the SSE Composite (China) index delivered a 0.5% loss during the quarter.
Local
South African markets delivered a strong showing in the first quarter of 2025. The rally was largely driven by a robust performance in the resources sector, supported by a sharp rise in precious metal prices, particularly gold as investors sought safe-haven assets amid rising geopolitical tensions and the imposition of global tariffs by US President Trump. China’s recently announced stimulus initiatives also helped lift commodity prices. The JSE All Share Index (ALSI) gained 5.9% for the quarter, outperforming both developed and emerging market indices. The robust performance of South African equities during the quarter was largely driven by a handful of major stocks, including gold miners, Naspers/Prosus, MTN, and several rand-hedge companies like British American Tobacco and Richemont. The resources sector surged 33.7%, while the industrial sector posted a gain of 4.3%. The financial sector declined by 1.7% for the quarter. The property sector faced headwinds, with the All-Property Index falling by 3.5%.
On the economic front, South Africa recorded modest growth of 0.6% quarter-on-quarter in the fourth quarter of 2024, narrowly escaping a technical recession after a 0.3% contraction in the previous quarter. Annual consumer price inflation fell sharply to 2.7% in March 2025 from 3.2% in February and below analysts’ estimates of 2.9%. This marked the lowest reading since June 2020, falling below the lower bound of the SARB’s 3–6% target range, mainly due to a steeper decline in the fuel index (-8.8% vs -3.6% in February). The South African Reserve Bank opted to keep the repo rate steady at 7.50% in March, following a rate cut earlier in the year, reflecting a cautious monetary policy stance. However, political risk re-emerged after President Trump declared a freeze on U.S. aid to South Africa based on unverified reports of land seizures, while fiscal concerns grew as the national budget speech was delayed due to internal coalition disagreements over a proposed increase in VAT. During the quarter, the US dollar lost ground against a basket of major currencies. The South African rand appreciated by 2.3% against the dollar, while it declined slightly against the euro (down 1.5%) and the pound sterling (down 0.8%). However, these currency movements occurred in a relatively stable and orderly fashion.
The FTSE All Bond Index (ALBI) posted a modest gain of 0.7% for the quarter, reflecting a more subdued performance in the South African bond market. Budget-related concerns contributed to a steepening of the yield curve, with yields on longer-dated bonds rising in March, while shorter-term yields remained relatively stable. Inflation-linked bonds showed a similar pattern, with the Composite Inflation-Linked Bond Index also returning 0.7% for the quarter, alongside a comparable steepening of the yield curve.
Source: 2IP, I-Net Bridge, BER, RMB Global Markets, Bloomberg, Stanlib Asset Management, Schroders, Stats SA, M&G, Ninety-One