Overview
Global markets have experienced significant volatility at the beginning of 2025, driven by rising trade tensions and uncertainty about U.S. policy directions under President Trump’s new administration. The introduction of new US tariffs on China, Mexico, and Canada has added to investor concerns, contributing to broad-based market fluctuations.
Most developed and emerging markets have been heavily influenced by movements in US markets. In February, both global and local markets struggled to maintain momentum. The S&P 500 fell 1.42% (USD), the Dow Jones Industrial Average lost 1.58% (USD), and the Nasdaq declined 2.7% (USD) for the month of February. Investor sentiment was weighed down by shifting economic expectations, sectoral rotation, and cautious corporate guidance. However, despite short-term market weakness, underlying economic fundamentals remain intact, with corporate earnings continuing to show resilience and select sectors offering pockets of strength.
United States
After a strong start to 2025, February saw some moderation in the US exceptionalism narrative. Uncertainty surrounding the US administration’s policy agenda weighed on both corporate and consumer sentiment, raising renewed concerns about economic growth. As a result, US equities struggled, particularly in the technology and consumer discretionary sectors, with the S&P 500 posting negative returns for the month.
Despite these concerns, corporate earnings growth remains healthy. Companies representing over half of the S&P 500’s market capitalization have reported fourth-quarter results, with more than 60% surpassing sales estimates and approximately 75% beating earnings forecasts. Corporate profits are on track to grow by 7-9% year-over-year for the three-month period, with first-quarter guidance aligning with normal seasonal expectations.
The broader US economy remains in a solid position. While certain sectors, such as homebuilders and industrials, continue to face challenges, household spending remains robust. Visa and Mastercard both characterized consumer activity as healthy, and airline companies highlighted strong demand for premium seats. US GDP expanded by 2.3% in the fourth quarter of 2024, bringing full-year growth to 2.8%—only slightly lower than 2023’s 2.9%. Although GDP growth is expected to moderate in 2025, a stable pace of around 2% remains likely.
Investment in artificial intelligence (AI) continues to drive significant capital expenditure. The combined capex of the four largest US tech firms is projected to rise by 25% to $280 billion this year. Microsoft and Meta reaffirmed their capital expenditure outlooks, and Alphabet announced plans to invest approximately $75 billion in 2025. This commitment to AI innovation should sustain momentum across the sector. With AI adoption continuing to accelerate, we anticipate that the gap between AI investment and revenue growth for major tech firms will narrow further.
Europe
European equities outperformed US markets in February, with the MSCI Europe ex-UK Index rising 3.4% (EUR). Growing optimism regarding a potential ceasefire in Ukraine supported investor sentiment, while financials remained the best-performing sector, continuing to generate returns on equity that surpass those of US counterparts. Additionally, European defence stocks benefited from a renewed emphasis on domestic production, delivering impressive gains of 9.3% (EUR).
Asia and Emerging Market
Asian equities advanced 1.1% (USD) in February, led by Chinese stocks, which surged 11.7% (USD). Investor enthusiasm surrounding DeepSeek supported Chinese technology stocks, and high-profile meetings between President Xi Jinping and business leaders suggested an improving regulatory environment. However, domestic Chinese equities—more sensitive to GDP trends—lagged due to ongoing concerns about the real estate market. Japan was an outlier in the region, with the TOPIX index declining by 3.8% (Yen), as the yen appreciated by 2.8% against the US dollar. Emerging markets outperformed developed markets, posting a 0.5% (USD) return for the month.
South Africa
South African equities followed global markets lower in February, with the FTSE/JSE Capped SWIX Index declining 0.4% (ZAR) for the month. Politically, February was a turbulent month. The US administration, under President Donald Trump, announced plans to cut aid to South Africa due to concerns over land policies. Domestically, the budget speech was unexpectedly postponed, as Finance Minister Enoch Godongwana struggled to gain consensus within the Government of National Unity (GNU) regarding a proposed 2% VAT hike. The rescheduled budget speech is now set for March 12.
The South African government’s 10-year bond yield rose to 10.5% despite a generally favorable global bond environment, driven by heightened risk aversion and geopolitical uncertainty. The rand also weakened slightly, depreciating 0.2% against the US dollar.
House view: A Diversified Approach for Long-Term Growth
While policy uncertainty remains a risk, we maintain a constructive outlook on equities. Our base case remains that global equities will continue to outperform, with strong earnings growth supporting technology, financials, and utilities as preferred sectors. Despite short-term volatility, we believe this is temporary market noise that will fade, allowing global equities to continue outperforming.
Importantly, our investment strategy is not solely reliant on US markets. For our balanced investors, the Sierra Global Fund is well-diversified, with exposure to Europe and China, which provides additional layers of protection when US markets underperform. This geographical diversification enables our investors to capture growth opportunities beyond a single market cycle.
Additionally, our portfolio maintains a strong allocation to global bonds, offering further downside protection during periods of market stress. This balanced approach ensures that we are well-positioned to navigate various economic conditions while capturing global growth trends
While global markets posted negative returns for the month, the Sierra Global Fund has maintained a positive year-to-date return, providing USD investors with 2.37% and GBP investors with 3.15%. This highlights the strength of our diversified approach. Our ability to stay in positive territory is driven by strategic portfolio diversification, as seen in our holdings.
Our allocation to value stocks has increased by 7.36% (USD) year-to-date, highlighting the benefits of style diversification. Meanwhile, our exposure to gold, a reliable hedge, has further strengthened portfolio resilience, increasing 17.10% (USD). Additionally, our investments in China and emerging markets have increased 2.69% (USD) and 4.30% (USD), respectively, reinforcing our commitment to geographical diversification and capturing opportunities beyond the US market.
As always, we remain vigilant in monitoring macro and microeconomic trends and will adjust our portfolio positioning as needed. However, we firmly believe that short-term market noise does not overshadow long-term growth potential. Investing is about time in the market, not timing the market, and our disciplined approach is designed to generate sustainable returns over the long run.
Global Returns below (as of 28 February 2025):
