Navigating market turmoil: SA small caps impact

Today marks President Trump's 100th day in office, a tenure riddled with volatility and promises of further actions. Under Trump's leadership, the S&P 500 has experienced an 8 percent decline, making it the worst performance for the first 100 days of a presidency since President Gerald Ford in 1974. The recent 'Liberation Day' trade tariff announcements in the US were harsher than anticipated by the markets. To evaluate the impact of these events on South African small to mid-cap stocks post Trump 2.0, CNBC Africa interviewed Anthony Clark, Independent Analyst from Small Talk Daily Research. Anthony Clark highlighted the significant performance of small to mid-cap stocks on the JSC in 2024, with the small-cap index soaring by over 30 percent, one of the best performances witnessed in many years. However, since the beginning of the year, there has been a noticeable shift away from domestic small to mid-cap stocks towards larger companies with exposure to external markets and Rand hedging. The trend has been towards the resources sector, especially with gold prices reaching $3,310 per ounce. Domestically, the year-to-date performance shows the Aussie up by 6.43 percent, the mid-cap index flat, and the small-cap index down by 5.5 percent. Following the 'Liberation Day' announcements, the small to mid-cap sector witnessed continued volatility, leading institutions to sell off stocks in search of liquidity, gravitating towards cash or larger, more stable companies. Clark noted a complete rotation away from smaller, more volatile stocks into safer mid-cap options, characterized by companies with market capitalization exceeding 10 billion Rand. The shift indicates a deliberate move towards quality and stability, with only a handful of mid-cap stocks garnering interest as investors seek refuge from the uncertainties surrounding Trump's policies. In the realm of investment picks, Clark shed light on his selection process, which involves choosing and holding ten stocks for a full year. Despite the economic challenges and uncertainties triggered by Trump 2.0 and local policy disputes, Clark's selected stocks, such as Hoskins Consolidated Investments, Cash Built, and Advertech, remain fundamentally sound. The economic turbulence in South Africa, exacerbated by a volatile Rand and policy disagreements within the Government of National Unity, has cast a shadow on the stock portfolio's performance, which is currently down by 20 percent year-on-year. When queried about the optimal conditions for investing in the small-cap sector, Clark emphasized the importance of identifying companies with resilient balance sheets, substantial cash reserves, low capital expenditure rates, and predictable income streams. Despite the challenging economic environment in South Africa, certain mid-cap stocks like Blue Telecoms, CA Sales, and Stardew have shown encouraging growth due to their strategic business models and market positioning. On the contrary, companies like Italtile and Cashbuilt have faced setbacks due to the lackluster domestic economy, marked by political infighting and sluggish consumer demand. As an analyst tasked with guiding institutional clients through market fluctuations, Clark stressed the significance of seeking out overlooked companies with transformative news potential. Amidst the economic headwinds, investors are gravitating towards firms demonstrating resilience and predictability, particularly in the mid-cap sector. Companies with diversified revenue streams and international market exposure are gaining traction amidst the uncertain global and domestic economic landscape. In conclusion, despite the challenges posed by Trump's presidency and the internal strife in South Africa, opportunities for strategic investments persist in the small to mid-cap space. As Anthony Clark aptly summarized, investors are now focusing on predictability, resilience, and growth potential, pivoting towards companies with robust fundamentals and strategic positioning.