Navin Lala | Client Director | Old Mutual Alternative Investments (OM Alternatives) | mail me |
2024 marked the biggest election year in human history. Over 70 countries held elections, representing more than half the global population. Estimates show that over 80% of incumbent parties lost voter support in 2024 compared to the previous election. This shift made 2024 a significant year for global democracy.
Economic challenges, particularly inflation, played a key role in voters’ decisions. Dissatisfaction with incumbent governments also contributed to major electoral shifts. These factors led to key outcomes such as Donald Trump’s return to the White House. In South Africa, the African National Congress (ANC) lost its majority for the first time since 1994.
Playing the Trump card
One consequence of the elections’ anti-incumbent theme is a world scattered with newly installed governments. These governments now seek to change the status quo.
President Donald Trump leads this wave of transformation. His “America First” policy and push for deregulation gained strong support from corporate America. At the start of the year, this support boosted optimism about US growth. Businesses anticipated higher corporate profits under Trump’s leadership.
After months of tariff threats, the Trump administration took decisive action. On 4 March, it imposed a 25% tariff on imports from Mexico and Canada. Additionally, the US doubled duties on Chinese goods to 20%. These trade measures launched new conflicts with America’s top three trading partners.
Trump also froze aid to Ukraine, signaling a major shift in global diplomacy. These events underscore his administration’s significant impact on the international landscape. Markets thrive on certainty, yet Trump’s impulsive nature challenges investors. He often states one thing in the morning and contradicts it by evening.
Investors struggle to differentiate between Trump’s posturing and real policy changes. This uncertainty makes it difficult to predict market outcomes accurately.
The influence of private markets on global development
The next four years will likely feature geopolitical tensions, economic uncertainty, and market volatility. These factors place investors in uncharted territory and heighten risk exposure.
Large market swings necessitate resilient portfolios. Investors must prepare to withstand the Trump era while seizing emerging opportunities.
Historically, balanced portfolios relied on a 60/40 split between stocks and bonds. This strategy leveraged the inverse relationship between these asset classes for diversification. However, stock and bond correlations have risen, altering their historic relationship. As a result, traditional 60/40 portfolios now offer less effective diversification.
Mark Twain famously said, “It isn’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so”. This statement warns against misplaced confidence in outdated financial strategies. Investors must adapt to changing market dynamics to avoid unnecessary risks.
To address these changes, investors have increased alternative investments. Many now allocate 40% to stocks, 30% to bonds, and 20%-30% to private markets. The Global Pension Assets Study 2024 supports this trend. Data shows that alternative asset allocation rose from 11.7% in 2003 to 20.1% in 2023.
Why private markets matter in modern economies
Private markets offer crucial benefits when combined with traditional portfolios. Investments in private equity, mezzanine debt and infrastructure behave differently from stocks and bonds. These assets reduce volatility, enhance returns, and improve diversification. Their performance depends on economic fundamentals rather than market sentiment.
Public markets often react to investor sentiment, causing unnecessary volatility. In contrast, private market investments focus on underlying asset strength, reducing unwarranted risk.
While optimism surrounds US growth, South Africa’s economic outlook has also improved. Structural and cyclical factors now drive faster growth and boost business confidence.
How private markets fuel job creation
South Africa still needs reforms to sustain long-term growth. However, evidence suggests ongoing improvements in the economic landscape. Eskom’s energy availability factor has improved, ensuring a more stable electricity supply. Additionally, Transnet has increased its transport volumes, benefiting economic growth.
Consumer finances also show positive trends. Lower inflation, reduced interest rates, and better employment growth have strengthened household financial stability.
Improvements in the domestic economy create favorable conditions for private market investments. These investments provide direct exposure to real economic activities alongside public market assets.
As the world navigates the Trump presidency, uncertainty will persist. Higher market volatility underscores the importance of private markets in enhancing returns and ensuring portfolio resilience.
