Trading update : 28 February 2025

When the US sneezes, the world catches a cold, and there are worrying signs for the economy and dollar. While the AI chip race is hotting up thanks to DeepSeek’s arrival, tighter margins, rising competition and tariffs are weighing on stocks like Nvidia. Prosus is turning to Europe for growth, hoping to turn its latest acquisition into the iFood of Europe.

US growth engine spluttering?

More signs and signals are emerging to suggest investors should question the broad market view that the US growth engine is in good health. The US consumer accounts for roughly 66% of the US economy and poor retail sales data, coupled with a downgrade to full-year guidance from Walmart (WMT-NASQ) and a big decline in existing home sales are hard-to-ignore signs of trouble ahead. When it comes to inflation, it’s clear that tariff threats are driving up inflation expectations and are also weighing on consumer and business sentiment. The services sector, which has carried the growth story in the US economy for some time, also slipped back into contraction territory for the first time in two years. Investors should keep an eye on developments when allocating more to the US.

Dipping dollar

Wall Street’s US dollar bears are eyeing Trump’s first term as a guide, with investors torn between worrying about the impact of tariffs on US growth and wondering when those levies will come. According to a Bloomberg report, Morgan Stanley (MS-NASQ) expects the currency to drop this year for similar reasons to when it fell in 2017. You might want to dial back any dollar-cost averaging to buy the dip.

Tariff pain for US

New research suggests President Donald Trump’s latest tariffs on imports from China could hit the American economy more than official US trade data suggests. Bloomberg reports that the impact could be especially severe if the Trump administration ends favourable treatment of “de minimis” imports, which are valued at less than $800. US data shows that imports from China declined to 13.4% of total imports in 2024 from 21.6% in 2018. However, China’s data paints a different picture, showing exports as a share of the US import market have only declined by 2.5%, which is less than one-third of the decline shown in the US data. “Simply stated, the US is saying it buys from China a lot less than what China says it is selling,” wrote Hunter L. Clark, a New York Fed researcher in a blog post.

Tighter AI outlook

Nvidia (NVDA-NASQ) released strong results, with a mixed outlook. Sales will be about $43 billion in Q1, which runs through April, beating analyst expectations ($42.3 billion on average). However, the company warned that gross profit margins would be tighter than anticipated as it rushes to roll out a new chip design called Blackwell. US tariffs could also weigh on results.

Laying the chips down

Reuters reports that Naspers (NPN-JSE) and Prosus (PRX-JSE) owned Tencent, as well as Alibaba and ByteDance, have significantly increased orders of Nvidia’s (NVDA-NASQ) H20 chip due to higher demand for DeepSeek’s AI models.

Time to go defensive

Morgan Stanley’s (MS-NASQ) Lisa Shalett believes opportunities have arisen to find the next market leaders due to the decline of Big Tech. Quoted in a Bloomberg article, Shalett advised scouring balance sheets for companies with solid earnings that can withstand economic slowdown or inflation. She also sees potential in financial services, domestic industrials, energy, materials, consumer services, and healthcare, citing interesting generative AI applications in the latter.

Economic shock warning

Speaking ahead of a Group of 20 meeting of finance chiefs and central bank governors in Cape Town, SARB Governor Lesetja Kganyago said the global economy is at risk of splintering under US President Donald Trump’s policy onslaught. Quoted in Bloomberg,   Kganyago said: “We are seeing trade fragmentation, we are seeing economic fragmentation and it just raises the level of uncertainty … This heightened uncertainty has got implications for global trade and thus has implications for the global economy.” According to Kganyago, this makes policy-making a big challenge. “The only thing that a small open economy can do is to strengthen its resilience, build the buffers because this thing would come as a shock,” he said.

Prosus ready to Just Eat

 In its biggest deal so far, Prosus (PRX-JSE) put in a $4.3 billion all-cash offer for Just Eat Takeaway.com, an online food order and delivery platform. Just Eat shares soared 54% on the news. While the €20.30 offer is a big increase on the closing share price of €12.45, the share was above €100 in 2021 and was over €20 a year ago. The acquisition will give Prosus a much bigger focus in Europe, a more mature market with the income to support delivery services. Prosus believes that its success with iFood in Brazil offers a blueprint for how to transform Just Eat. The deal still requires regulatory clearances, with the deal expected to close before the end of the year.

SA inflation outlook

Inflation in South Africa remains largely contained, with a constructive outlook projected for 2025. Average inflation is expected to be 3.3% in the first half and 4.1% in the second, ending the year at 4.5% – smack bang in the middle of the Reserve Bank’s 3-6% target. However, the balance of risks skews to the upside, with the Trump tariff agenda adding to already high levels of market uncertainty.

Stock focus: Bid Corporation

While Bidcorp (BID-JSE) delivered a solid set of results, the stock ended the day down -1.2% after the numbers were slightly light against expectations. Revenue was up 7% in constant currency to R118 billion, with a 10.7% increase in half-year profit. After adjusting for food-basket inflation and acquisitions, real organic growth peaked at around 5%. The company upped its dividend by 7%.