Trading Update : 21 February 2025

Semis are surging, investors are full-on ‘risk on’, Morgan Stanley thinks China’s looking good again, and Nike hopes Kim K can turn their fortunes around. But investors need to proceed with caution as a “retail frenzy” is brewing and copper looks like it could take a tumble. President Trump is also about to open a new front in his trade war.

Surging semis

The semiconductor sector was a standout performer when Intel (INTC-NASQ) went up +16% on news that private equity firm Silver Lake was close to buying the company’s programmable chip business Altera. President Trump wants to make advanced semiconductors in the US, so his administration is trying to get companies like TSMC to take over Intel’s struggling foundry business.

Full-on risk-on

A Bank of America Corp. (BAC-NASQ) survey shows that global stocks are currently the most popular investment among investors, who are showing the biggest willingness to take on risk in 15 years. Bloomberg reported that fund managers are holding the least amount of cash since 2010. About 34% of people in the survey think global stocks will perform best in 2025. Investors are focusing on stocks and not much else, according to strategist Michael Hartnett.

Beware the market frenzy!

Andrew Slimmon from Morgan Stanley Investment Management warned about a ‘retail frenzy’ in speculative stocks, which he thinks might mean the bull market is ending. Bloomberg reported that individual investors’ exposure to stocks was very high at the end of January 2025, based on data from Barclays going back to 1997. Sentiment among these investors is also at an all-time high, even higher than during the meme-stock craze of 2021, according to Emma Wu from JPMorgan.

Another China bull

Morgan Stanley strategists are the latest to turn bullish on Chinese stocks. They predict the MSCI China Index (MCHI-NASQ) will reach 77 by the end of 2025 due to a structural regime shift in China’s equity market, driven by technological breakthroughs, regulatory shifts, and efforts to boost share value.

Europe’s chance

An opinion piece published in Bloomberg suggests that President Trump’s proposed $4.5 trillion tax cut in the US should raise eyebrows due to concerns about the country’s massive debt and deficits. While the Trump administration insists it can deliver tax cuts and meaningful deficit reduction simultaneously without any trade-offs, the Bloomberg Editorial Board believes that America’s missteps may create an opportunity for the European Union (EU) to establish a highly liquid “safe asset” to compete with Treasuries. As the editorial board put it, Trump’s chaotic tariff agenda will fuel inflation and uncertainty, and the budget proposal will add to the nation’s heavy debt burden, further undermining faith in US treasuries.

Copper bears

According to Citigroup Inc. (C-NASQ) copper will retreat to $8,500/ton after early April, when the implementation of US import tariffs starts to impact physical market strength. This would negatively impact earnings of copper miners like Freeport-McMoRan, Inc. (FCX-NASQ) and Rio Tinto (RIOL-TRQX).

New trade war salvo

President Donald Trump said he would likely impose 25% tariffs on automobile, semiconductor and pharmaceutical imports, with an announcement coming as soon as April. If implemented, the new duties would widen the president’s trade war after he imposed tariffs on steel and aluminium, which would take effect in March.

Nike gets a Kim K kick

After four tough years, Nike’s (NKE-NASQ) new management team are starting to claw back its big market share losses. The stock rose +6.23% after announcing a new partnership with Kim Kardashian and her Skims brand. It is the company’s first major product innovation update, which is a major reason why the Nike share price has underperformed Adidas by nearly 70% over the past year.

Budget 2025 postponed to 12 March

The National Treasury postponed the budget to 12 March 2025 after parties in the government of national unity were not willing to accept a proposed 2% increase in the VAT rate, from 15% to 17%. However, the Treasury will need to find ways to stabilise debt and find the resources to keep funding social programs, without increasing the deficit. The VAT increase was seen as the most effective way to raise additional revenues.

Stock focus: Kumba Iron Ore Ltd

The management team at Kumba Iron Ore (KIO-JSE) delivered on their cost-saving program in the last financial year, resulting in unit cost declines on both its Sishen and Kolomela mines. This happened while equipment availability and utilisation improved. The very encouraging cost containment was topped by a bumper dividend, which is well supported by a strong balance sheet. The company continues to focus on operational performance while rail transport remains constrained, and the iron ore market subdued.