The incumbent US president has been voted out by the American people and Donald J. Trump will be moving back into the White House on the 20th of January 2025 to officially become the 47th President of the United States. Much like the days leading up to the election day, South African financial analysts seem to be divisive on whether a Trump victory is good or bad for South Africa.
The answer cannot be as simple as ‘good or bad’ so let’s break it down. Let’s look at the facts and what history has shown us. South Africa has become known as the ‘1%’ country. South Africa makes up 1% of the world’s GDP, 1% of the world’s currency market and 1% of the world’s stock market capitalisation (Roper et al., 2024). In the context of the world – South Africa is seen as a small emerging market in Africa which automatically makes South Africa a high-risk market. In the guide to Offshore Investments 2024/2025 by Roper et al. (2024), the authors argue that no matter how solid the political, economic and investment fundamentals may be at times, difficulties in other emerging economies are more likely to have a knock-on effect on the South African market. There is no doubt that Trump’s policies will have an impact on economies around the world, however, this will affect some economies more than others. One of Trump’s promises to the people of America during his election campaign was ‘America First’ meaning he plans to impose bigger trade tariffs on countries which export a lot of goods to the United States. China, which had exported over USD 500 billion in 2021, 2022 and 2023 will be more affected by this policy compared to South Africa which only exported USD 13 billion, USD 10.7 billion and USD 8.3 billion over the same period (www.tradingeconomics.com). Hopefully Elon Musk (who endorsed Trump during his presidential campaign and has been selected to join Trump’s administration) can help negotiate better trade deals with the South African government which could increase our exports to the United States and as a result increase our trade surplus. One must keep in mind that Trump is not Anti-Africa. Trump did set up the Prosper Africa program under his first term as President. The program was launched with the intention to increase trade and investments between Africa and the United States. The US government has helped close 1800+ deals across 49 African countries for a total estimated value of $86 billion in exports and investments since June 2019 (www.posperafrica.com). The rhetoric that Trump is Anti-Africa or Anti-South Africa is simply not true.
Although South Africa is a ‘1%’ country, the single biggest benefit for South Africa that I see coming as soon as Trump takes office is that Trump is going to drive down the price of oil drastically. During the Presidential campaign we kept hearing Trump say, “Drill baby Drill”. The Biden administration artificially increased the price of oil and then supported the shutdown of the Keystone oil pipeline project in 2020. If my view is true and Trump does drive the price of oil down, then South Africa will benefit positively because all the inflationary pressures we have endured as a country over the last 4 years has been directly correlated to the cost of fuel. According to the South African Energy Sector Report of 2023, South Africa uses +/- 540 000 barrels of oil a day. If you translate this to Dollar terms (money which flows out of this country) and assume the price of oil drops by 20% – 30% then that’s an immediate boost to the bottom line for South Africa. This is one of the biggest benefits I see coming to South Africa.
So how did equities (local and global) as an asset class perform when Trump was previously in office…
Trump’s first tenure as President of the United States was from 2016 to 2019. As one can see from the below illustration, that local equity outperformed global equity in 2016 and 2017, and the inverse took place in 2018 and 2019, where global equity outperformed local equity.
It is important to diversify your risk by investing in different investments. A portfolio of different investment types will on average give you a higher return for less risk if you compare it to an investment in one asset class. The goal of diversifying your investment is to smooth out risk events so that positive performance of some asset classes will cancel the negative performance of others.
This illustration below highlights the importance of having a diversified portfolio no matter who is President of the United States. Although past performance is not a guarantee of future performance, the table below highlights how imperative it is for investors to have a diversified investment portfolio. South African investors who were only invested in global equities from 2016 to 2019 would have missed the positive return local equities delivered in 2016 and 2017.
It is important for investors, with the help of their financial advisors, to set clear investment goals as well as ensure that their portfolios are well diversified. Investors should also stay clear of investing according to what they see in the media or hear in the mainstream news. Investors who did not have exposure to equities from the start of 2024 because they were waiting to see what happens with the US elections have missed out on positive equity return both locally and offshore.
Source: Momentum
Returns are annualised in Rands
Are Democrats or Republicans better for US stocks?
History strongly indicates (see below illustration) that the path of least resistance is higher, regardless of who holds office. No matter if a Democrat or a Republican holds office, US equities over the long term have moved in an upward (left to right) direction. Investors should not be emotional on who is president but rather understand that equities move in an upward direction and ultimately is the best performing asset class over the long-term. No matter who is President, the most important thing we can do as investors is to set concrete investment goals, don’t deviate from your investment plan and most importantly make sure you have a well-diversified investment portfolio.
Source: Clearnomics, Standard & Poor’s. 1933-2023
Past performance is no guarantee of future results. For illustrative purposes only. An investment cannot be made directly in an index.
