Sasfin Global Equity Model - Quarterly Review Q4 2024

SGEM is designed for investors who can weather short-term market swings in pursuit of long-term, compounding growth.

Join Jonathan Wernick, Senior Equity Analyst, and Craig Pheiffer, Chief Investment Strategist, as they unpack SGEM and its approach to global investing. Watch the full video here:

The MSCI ACWI Index, a broad measure of global equity markets, declined 1.0% during the quarter. The period was dominated by the U.S. presidential election, which saw Donald Trump regain control of the White House. Global markets, with the exception of the U.S., retreated at the prospect of a second Trump term, their declines exacerbated by the strengthening of the U.S. dollar.

During his second stint, Trump’s policies, often referred to as the “Trump trade” or “Trump 2.0”, are quite likely to include reduced regulation, lower taxes, immigration restrictions and higher tariffs. Even before his inauguration, the President-elect has threatened to wield the tariff stick. Tariffs can fuel inflation and bond yields climbed higher during the quarter in anticipation of such an outcome. The US 10-year benchmark yield ended the quarter 78bps higher at 4.57%.

The rise in bond yields has also been supported by the U.S. Federal Reserve (“Fed”) adopting a more hawkish view. To cap off the year, Fed chairman, Jay Powell, announced a 25bps rate cut. It was however overshadowed by the Fed’s projections for 2025 which signalled fewer rate cuts than previously expected.

The Trump trade is expected to lead to a stronger U.S. dollar which accounts for the upward jolt of the greenback during the quarter. The U.S. dollar index, a measure of U.S. dollar strength against other major currencies, gained 7.3% during the period.

U.S. equities are also expected to be benefit under the Trump administration. This was reflected in the strong gains by S&P 500 (+2.3%) and Nasdaq (+6.3%) indices. Conversely, the Trump trade, particularly higher tariffs, may serve as a headwind to other global equity markets and this was reflected in their quarterly performance. In local currency terms, there were declines in major indices such as Europe’s STOXX 600 (-1.8%), Mainland China’s CSI 300 (-1.7%), Hong Kong’s Hang Seng (-4.9%), and India’s BSE (-7.2%). The gain in the Japanese Nikkei 225 index (+5.4%) was the only positive standout. However, when accounting for the USD strength during the quarter, the underperformance of other global equity markets is amplified with even the Nikkei 225 ending in negative territory.

While the market is anticipating U.S. equities to benefit during the Trump era, not all are expected to do so equally. There are some that are likely to benefit more so than others from decreased regulation and lower taxes.  Likely candidates include technology stocks, such as those within the Information Technology and Communications Services sectors as well as certain large cap names within the Consumer Discretionary sector (Amazon and Tesla). Financials, particularly those engaged in deal making, trading and cryptocurrencies may also prosper.

On the other end of the spectrum are the expected Trump trade losers. The notable standout in this regard is the Health care sector. Markets have grown concerned that Trump and his cabinet may disrupt the status quo in the healthcare industry. This could result in reduced profitability for major pharmaceutical companies and health insurers.  The latter were pegged back even further during the quarter following the shock assassination of the CEO of UnitedHealthcare, the largest health insurer in the U.S.

Materials was the worst performing sector during the quarter. Trump tariffs and a weakened Chinese economy combined to depress commodity metal prices. Gold withstood much of the selling pressure as it ended the period only slightly down at $2,609/ozt (-0.8%). It has been a rollercoaster ride for the yellow metal. The price of bullion rose precipitously as tensions in the Middle East escalated and concerns around the growing U.S. deficit gained impetus. A Trump victory followed by the USD rally poured cold water over the party wiping out earlier gains from the quarter. Unlike previous periods of conflict in the Middle East, escalating tensions did not lead to a surge in oil prices. Increased U.S. oil production, which is expected to rise under Trump, as well as subdued demand in China, led to a relatively stable oil price during the period. Brent crude and WTI ended the quarter only slightly higher at $70 (+3.1%) and $69 (+5.4%) barrel respectively.

A less accommodating interest rate environment negatively impacted the Real Estate sector. Affordability remains a key issue in the U.S. housing market whilst the Commercial market seems set to remain stagnant in a higher-than-anticipated interest rate environment

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