Trump’s Tariffs, Metals Keep Rising, African Upside: The Week Ahead
Trump sink stocks, Gold hits new highs, Zimplats vs Caledonia, African Tailwinds
For the week ahead, these are some of the most important stories to watch.
Donald Trump’s China tariffs and how Africa may benefit
There are two main approachess for predicting the future.
One way is trying to figure out what will change.
Whilst this is the intuitive approach that we commonly use, it’s also the hardest and most unreliable.
The other approach is to figure out what will remain the same.
This approach is often more reliable because it starts with what you already know and then you can draw insights from that solid base.
One of those things that will remain the same is the predictable unpredictability of Donald Trump.
Trump is a maverick president, who doesn't operate by the norms.
On Friday, he demonstrated this again by announcing he would impose a 100% tariff on all products from China in response to restrictions from China on rare-earth elements. → Reuters: Trump ratchets up US-China trade war, promising new tariffs
This rapid escalation caught the markets by surprise, resulting in a sharp drop in the stock market that wiped out $2 trillion in value. → Reuters: Stocks, dollar tumble; Trump says he will raise China tariffs
Investors were clearly nervous that the trade war, which had seemed to de-escalate, could reignite.
Ironically, Trump’s unpredictable nature may be indirectly benefiting African businesses.
The CEO of Jumia, an online marketplace operating in nine African countries, has said that interest in Africa has increased since the US-China trade war escalated.
Bloomberg Reports:
“Jumia Technologies AG’s Chief Executive Officer Francis Dufay said the global trade war is benefiting Africa’s biggest e-commerce company by increasing its access to Chinese goods.
Our pipeline of goods from China is getting healthier and healthier and we have a lot more interest from Chinese suppliers and vendors,’ Dufay said in a Bloomberg TV interview. ‘It’s really making our lives much easier.” → Trump Trade War Is Helping Jumia Access Chinese Goods, CEO Says
I think this will not only be the case with China. European businesses for example are also likely to start seeking alternative destinations for capital and goods as the America First policy takes hold.
We touched on this last week as well when explaining why this year African Stock markets have been some of the best performing in the world.
Comedian Trevor Noah once joked that Donald Trump was America’s first African President due to his behaviour being more reminiscent of African leaders who refused to relinquish power.
Ironically, those same traits may now drive increased investment into Africa.
Gold is good, but silver is better?
Last week, we mentioned that gold could pass $4,000, and on Tuesday, it did, breaking another record. While gold has been getting the most headlines, it actually has been the worst-performing precious metal this year!
Reuters reports:
“Surprisingly, gold is the worst-performing of the four precious metals this year despite a rousing 53.8% year-to-date rally making it the hottest streak for bullion in almost half a century. Platinum has had an even better year, leading the pack with an 83.6% rise year-to-date. Spot silver hit a record high of $49.57 this month after a 70.4% rally during the same period. And basking in a surge last month, palladium is up 60.5%.” → Reuters: Precious metals surge with gold’s (2)4K magic in the air
With the above in mind, it makes you wonder if the next play will be stocks of other precious metals.
Gold stocks have already performed exceptionally well, and in some cases, other precious metals stocks have not risen as much, despite the higher increase in precious metal prices.
A good example is comparing gold miner Caledonia, which we looked at last week, with Zimplats, the platinum mining company. Both companies operate mines in Zimbabwe.
Caledonia is up over 250% this year, while Zimplats is up 50%. Could this be the next move?
Whatever the case, it does seem that there is still room for metals, including gold, to rally further. Below is what we said last week:
“If you’ve had exposure to gold-related stocks, you’ve likely done well. The rally may have further to run, so monitoring U.S. policy developments will be critical. With Trump’s predictable unpredictability, gold’s safe-haven appeal isn’t going anywhere.”
This position still holds.
Where’s the Money, What’s the Move?
For investors: Given the sharp drops in stocks on Friday, which may continue this coming week, you may have an opportunity to buy certain stocks you have been watching. However, this also depends on your perception of the market.
The bull case is that stocks are currently priced quite low relative to precious metals, and a drop in stock prices that the tariff announcements may bring about may mean a buying opportunity.
The bear case is that the forward P/E is currently around 22, which is historically very high. Often, when investors in the past have bought in at these levels, returns have been average.
The forward P/E ratio tells you how much investors are paying today for $1 of a company’s expected future earnings (profit). e.g. if a stock trades at $20 and is forecast to make $2 per share in earnings next year, its forward P/E is 10, i.e. investors are paying $10 for every $1 of expected earnings. A higher P/E typically signals stronger growth expectations, which may also indicate overvaluation in some cases.
For Business Leaders: Africa has faced headwinds in attracting investment in recent years as the “Africa Rising” narrative lost momentum.
However, with Donald Trump’s “America First” agenda likely to create friction in traditional markets, global investors may increasingly turn their attention to Africa as the next frontier for growth and opportunity.
If you have previously had discussions with international investors, partners or suppliers that didn’t go far, now could be a good opportunity to restart those discussions.