After a strong start to 2025, February took a sharp turn as the world felt the full impact of Trump 2.0’s policy shift, with the announcement of tariffs targeting Canada, Mexico, and China on the very first day of the month. This sudden move stirred up global markets, causing a lot of uncertainty and sparking worries about the economy. Both global and local markets struggled to maintain momentum, with the S&P 500 falling 1.42% (USD), the Dow Jones Industrial Average losing 1.58% (USD), and the Nasdaq declining 2.7% (USD) for the month of February. Meanwhile the UK's FTSE 100 defied expectations, gaining 3,36% (USD) as investors responded favourably to the Bank of England's decision to cut interest rates by 25 basis points.
Investors focused on the risks to U.S. growth and questioned whether high earnings expectations and elevated valuations—particularly for tech megacaps—were justified. Despite the challenges, market leadership broadened for a second month, with Europe delivering another strong performance, while positive momentum in Chinese tech stocks helped emerging markets outperform their developed market peers. South African markets reflected a mixed picture.
However, despite the short-term market downturn, core economic fundamentals remain strong, with corporate earnings holding up well and certain sectors showing areas of growth.
US MARKETS
During February, US equities faced a turbulent ride, with the S&P 500 reaching a new high on 19 February before reversing course and ending the month lower as economic concerns mounted, trade tensions resurfaced, and geopolitical uncertainty increased. The three major US averages recorded monthly losses, with the tech-heavy Nasdaq being the worst performer. Nvidia, despite reporting an impressive 78% year-on-year revenue growth, saw its shares decline due to a dip in gross margins and the smallest revenue beat in two years, highlighting investor sensitivity to any signs of potential weakness.
The weakest sectors were consumer discretionary and communication services, while consumer staples led the gains. Concerns also lingered over the sustainability of earnings from US mega-cap tech stocks, particularly those linked to the artificial intelligence theme, as the Magnificent 7 posted its weakest performance since December 2022.
Meanwhile, US GDP grew by 2.3% in quarter four of 2024, pushing full-year growth to 2.8%—just shy of 2023’s 2.9%. Although GDP growth is anticipated to slow in 2025, a steady rate of around 2% is expected.
EUROZONE/ UK MARKETS
Across the pond, the recovery seen in Eurozone equities continued with the Euro Stoxx 600 Index returning 3.4% for the month driven by optimism surrounding a potential Ukraine ceasefire and strong performance from financials and defence stocks.
Country-specific indices also showed significant gains. Germany’s DAX index rose by 2.4% on March 3, 2025, bolstered by news of European leaders working on a Ukraine peace plan to present to the U.S. France’s CAC 40 also experienced substantial growth during the same period. This surge in European equities marked the largest performance gap in favour of European stocks over the S&P 500 since 2000.
UK equities rose in February, driven by gains in the financials, healthcare, and industrials sectors, with large cap banks, defence companies, and major pharmaceutical groups leading the FTSE 100 higher. In contrast, consumer discretionary, consumer staples, and basic materials sectors underperformed, reflecting ongoing concerns around the domestic economic outlook. Sentiment towards UK small and mid-sized companies continued to deteriorate over the period, weighing on the FTSE 250 and FTSE Small Cap indices, as the challenging economic environment particularly impacted consumer-facing sectors.
ASIA
Asian equities rose by 1.1% (USD) in February, driven mainly by a strong performance in Chinese stocks, which surged 11.7% (USD). Early in the month, Chinese markets were volatile due to renewed US tariff risks but managed to bounce back. Optimism grew following supportive policy signals from President Xi’s meeting with tech leaders, boosting confidence in Chinese stocks and strengthening China’s position in the global AI race. Investor enthusiasm around DeepSeek further supported Chinese technology stocks, suggesting an improving regulatory environment.
Meanwhile, domestic Chinese equities, which are more closely tied to GDP trends, struggled amid continued worries about the real estate market. In contrast, Japan bucked the regional trend, with the TOPIX index falling by 3.8% (Yen) as the yen strengthened by 2.8% against the US dollar.
LOCAL MARKETS
The FTSE/JSE ALSI delivered a flat return in February, as rising fiscal and geopolitical headwinds weighed on performance. Investor sentiment took a hit when US President Trump announced a freeze on all aid to South Africa, citing unverified claims of land confiscation, which heightened geopolitical tensions. Domestically, uncertainty increased when Finance Minister Enoch Godongwana postponed the national budget speech after the coalition government failed to reach consensus on a proposed 2% VAT hike. The political turbulence, combined with fears of strained US-South Africa trade relations, led to increased volatility in the South African Rand. Meanwhile, the South African Reserve Bank (SARB) cut its key interest rate by 25 basis points to 7.50%—the third consecutive rate cut—citing well-contained inflation but acknowledging a more uncertain medium-term outlook. The rand closed off the month at 18.42/ USD.
Budget Speech Key Takeouts: 12 March 2025:
The second iteration of the 2025 Budget has sparked mixed reactions from the market, as the government attempts to strike a delicate balance between revenue generation and fiscal sustainability.
Looking ahead, key factors to watch for in the upcoming weeks include the final parliamentary approval process, potential budget amendments, and developments in SA’s credit ratings and greylisting status.
Credits: Strategic IQ, Ninety One, Investec, Bloomberg
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