Deutsche Bank on the tariff market jolt

South Africa's equity market momentum, which began after the May elections last year, has been maintained into 2024 thanks to a business-friendly GNU established in July, coupled with months free of disruptive rolling power blackouts. However, as we enter 2025, investors are now eagerly awaiting companies to deliver on profit projections. Dirk Steffen, Chief Investment Officer for EMEA at Deutsche Bank, recently shared his insights on CNBC Africa, discussing the current market conditions and the impact of tariffs on the global economy. During the interview, Steffen reflected on the recent sell-off in the global markets following Liberation Day, attributing it to tariff announcements that have particularly affected the U.S. economy. He described the high volatility seen in recent trading sessions, with notable intraday moves of up to nine percentage points on the Nasdaq. The market volatility has been fueled by concerns over tariffs and trade negotiations, leading to what has been dubbed as 'Manic Monday.' Steffen stressed the importance of diversification in such turbulent market conditions, acknowledging that panic selling and technical position cleaning have led to broad declines across various asset classes. While short-term market corrections can impact even fundamentally sound investments, he highlighted the potential for divergent performance patterns to emerge over the medium term, emphasizing the value of a diversified portfolio for long-term investors. When discussing tariffs, Steffen outlined three perspectives: tariffs as a source of income to address budgetary needs, tariffs for protecting domestic industries, and tariffs as a negotiating tool to achieve political goals. He emphasized that the interplay of these three types of tariffs will drive market movements in the future. Turning to South Africa, Steffen acknowledged the challenging economic and political landscape, expressing caution about the impact of global tariff shocks on the country. He warned of potentially difficult times ahead for the South African economy and financial markets, citing the currency's depreciation as a reflection of the prevailing uncertainties. Amidst the market turbulence, Steffen discussed investment opportunities emerging from the significant market corrections, suggesting that there could be violent rebounds in the market as conditions evolve. He underscored the importance of identifying sectors with strong balance sheets in anticipation of potential recessionary signals, citing proactive fiscal policies in Europe as a source of support for industrial and financial sectors. Looking ahead, Steffen differentiated between mature economies like the U.S. and Europe and emerging markets in terms of growth potential. While mature economies face subdued growth rates, he highlighted the growth prospects in emerging markets, albeit amidst tariff-related uncertainties. Steffen emphasized the significance of understanding the growth trends in emerging markets when evaluating investment opportunities. In conclusion, Steffen's insights shed light on the complexities of navigating the current market environment and the importance of strategic diversification and proactive investment strategies in the face of global economic challenges and uncertainties.