Warning to South African investors
South African investors should not act rashly amid periods of elevated global uncertainty, as it is important to remain focused on long-term investment goals rather than short-term fluctuations.
This is feedback from Roné Swanepoel of Morningstar South Africa, who outlined some of the short-term impacts of tariffs on investor behaviour and portfolios.
US President Donald Trump announced a series of reciprocal tariffs in his Liberation Day speech, which were applied to many countries in a non-uniform manner.
A 10% across-the-board tariff was coupled with higher reciprocal tariffs for countries deemed to be particularly bad offenders.
For example, South Africa was hit with a 30% tariff on top of the 10% tariff due to the size of its trade surplus with the United States.
However, the tariffs are not clear-cut, with many local exports exempted as they are classified as critical minerals, for example.
The higher reciprocal tariffs have also been delayed for 90 days to allow countries to negotiate for lower tariffs on their exports to the United States.
These new rates are higher than anybody predicted, and the minimum of 10% for any country, regardless of their trade balance with the US, remains in place, Swanepoel said.
The President believes these tariffs will help reduce the long-standing US trade deficit, which peaked at $918.4 billion in 2024, representing 3.1% of GDP, a substantial increase from 2023’s $773.4 billion.
Aside from the immense uncertainty created, the initial reaction has been to bring down forecasts for US GDP – this is being done by virtually all economic forecasters.
Swanepoel also stated that the imposition of tariffs on goods increases the likelihood of a recession, particularly when combined with retaliatory tariffs from other countries, such as China.
A lagging impact of the tariffs will be higher inflation around the world as trade becomes more difficult and prices rise in line with the extra cost exports will pay.
However, this is difficult to predict as it depends largely on the extent to which producers can pass on additional costs to consumers.
Implications for investors
The combination of lower GDP and higher inflation presents a series of challenges for markets and investors worldwide, Swanepoel said.
The most significant short-term outcome of the announcement may be its impact on future Fed policy and U.S. interest rates.
However, as challenging as policy changes can be, they do not alter the fundamental behaviour of economies or markets.
While tariff changes matter, they are not the only, or the most important, driver of economic growth and inflation.
Current economic conditions reflect the impact of past fiscal and monetary policy actions, as well as the distinct business cycles of individual industries.
Determining what changes are due to tariff adjustments will require a close examination of how companies respond, as well as macroeconomic data on how consumers adapt.
The intertwining of supply chains means that there is no straightforward conclusion to be drawn, and a broader perspective is needed to assess potential economic outcomes and gauge their likelihood.
Swanepoel warned that it’s critically important to remain disciplined and committed to a long-term investment strategy in times like these.
However, this doesn’t imply that doing nothing is always the best approach either, with investors having to closely watch if particular sectors or companies are specifically hard hit by tariffs.
It may be prudent to rebalance market segments that are holding up well and ensure allocations to struggling asset classes remain aligned with your asset allocation targets.
Maintaining allocations to targets helps mitigate concentration risks to sectors, regions, or individual investments.
If markets dip 10% to 15% and you’re in a well-diversified portfolio, not gambling on one company, cryptocurrency, or gold, then having some spare cash could be an opportunity to buy.
For individuals with retirement savings, pension funds, or unit trusts, it is best to leave your capital invested rather than lock in a loss from a wild market swing and break the compounding process.
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