June 2025 Newsletter

Highlights of this month’s newsletter:

“The only good economist I have found is the stock market.”

– Stanley Druckenmiller, Battening down for a recession

Market overview: performance figures (%)

Source: Edmond de Rothschild, 02.06.2025

Source: Edmond de Rothschild

US tariff developments have remained a key focus over the past month. The US administration has finalized its first trade agreements within the 90-day timeframe set by President Trump, during which reciprocal tariffs were temporarily suspended.

These initial agreements suggest that the US intends to maintain the 10% baseline tariff while also providing targeted support to strategic domestic industries, such as the automotive sector. However, the US appears open to negotiation in exchange for improved access for US exporters.

The United Kingdom was the first country to reach a deal with the US, but the implementation details, including timing, are still under discussion. The primary benefit for the UK is a reduced tariff on car exports, which are a significant component of bilateral goods trade (see Chart 1). However, this reduced rate only applies up to a fixed quota, limiting future growth in exports at the lower tariff level. As a result, the agreement appears relatively limited in scope.

Chart 1: Cars, the largest commodity exported from the UK to the US, were key to the trade deal

Source: Investec

China’s recent trade agreement marks a significant shift in tariff levels. While the deal is currently temporary, it has already made a noticeable impact. If upheld, it would replace what was effectively a trade embargo with a framework that allows for limited trade to resume, although consumers can expect higher prices.

As a result of the deal, the average U.S. tariff on Chinese exports has fallen to approximately 51%, down from the peak of 135% reached shortly after “Liberation Day” in April 2025. This reduction is meaningful for China’s economic outlook.

Additionally, recent stimulus measures by Chinese authorities, such as reductions in the reserve requirement ratio and interest rates, have further bolstered the economic outlook. In response, we have revised our GDP growth forecasts for China upward.

Chart 2: Tariff rates by the US and China on each other’s exports have fallen but are still high

Source: Investec

It remains unlikely that the U.S. will finalize tariff rates and broader trade agreements with the rest of the world by July 9, the scheduled end of the 90-day moratorium on reciprocal tariffs. This deadline may be extended, but doing so prolongs uncertainty for businesses.

Despite widespread concerns about recession in markets last month, the latest economic data, including industrial production and retail sales, do not support these fears. These indicators suggest continued economic momentum (see Chart 4). However, the sharp rise in Eurozone industrial output in March is driven by firms accelerating exports to the U.S. ahead of potential tariff changes.

It’s important to note that most of the complex data currently available predates “Liberation Day” due to the typical reporting lag. In contrast, more current soft data, such as business surveys, paint a less optimistic picture. For example, composite Purchasing Managers Index (PMI) scores fell noticeably between March and May—by 1.4 points in both the U.S. and the Eurozone and by 2.1 points in the UK.

Chart 3: “Hard” data are holding up

Source: Investec

Policymakers remain cautious, aware that ongoing uncertainty could lead businesses to delay investment decisions. Despite these concerns, risk assets have shown a strong rebound, with major stock markets posting significant gains this month. In contrast, bond markets have declined, particularly at the long end of the yield curve.

Ninety-eight percent of the companies in the S&P 500 have reported results for Q1 2025 to date. Of these companies, 78% have reported EPS above estimates, which is above the 5-year average of 77% and above the 10-year average of 75%. Below are key highlights:

Nvidia

Nvidia’s share price rose by 5% following strong earnings that largely aligned with expectations. The company reported data center revenue of $39.1 billion, representing a 73% year-over-year and 10% quarter-over-quarter increase. This segment now accounts for 89% of total revenue.

We consider Nvidia attractively valued. It trades at a price-to-earnings (P/E) ratio of 31, which may seem high but is justified by its exceptional earnings growth, averaging around 90% per year over the past five years.

Microsoft

Microsoft delivered strong results across the board, with both revenue and earnings surpassing our estimates—all segments performed above the high end of guidance. Most notably, Azure continued to deliver impressive growth across both traditional and AI workloads.

These results reinforce our long-term investment thesis which focuses on the expansion of hybrid cloud environments, AI integration and Azure’s market leadership. Growth projections are centered around Azure, Microsoft 365 E5 migration, and the Power Platform.

Microsoft currently trades at a P/E ratio of 30, which we view as fair given its strong margins and resilient growth profile. Additionally, Microsoft is expected to be less affected by tariffs compared to other companies.

Chart 4: Cloud services revenue compared

Source: FinChat

Ferrari

Ferrari reported a 1% increase in volumes while achieving growth of 13% in revenue, 23% in EBIT, and 93% in industrial free cash flow. The key drivers were improved pricing, a new Formula 1 sponsorship deal, and stable research and development spending.

Importantly, Ferrari’s order book remains fully visible through to the end of 2026, with no signs of weakening demand or increased cancellations due to U.S. import tariffs.

Ferrari continues to trade at a premium to the broader market—but with justification. Since its 2015 IPO, the company has averaged a 30% return on invested capital, and its performance more closely resembles that of luxury brands than automotive peers. We believe Ferrari holds a wide intangible asset moat, as reflected in its brand strength, superior margins, premium pricing, and high customer loyalty.

Rheinmetall

Rheinmetall reported a 56% increase in its order backlog, reaching €62.6 billion, supported by €11 billion in new contract nominations. Management confirmed that approximately €55 billion of framework agreements, mainly from Germany, are now converting into firm contracts, providing over four years of revenue visibility.

Revenue increased 46% year-over-year to €2.31 billion, driven almost entirely by organic growth in defense. Defense margins hit a first-quarter record of 11.5%.

Rheinmetall’s share price has risen 217% year-to-date. While we continue to see upside, we have slightly reduced our holdings due to its growing weight in portfolios.

Tencent

Tencent delivered a strong beat across all segments in Q1 FY25. Gross margin rose to 56%, driven by rapid growth in higher-margin platforms, such as Video Accounts and Mini Programs.

Management highlighted the longer-term potential of AI to significantly boost advertising clickthrough rates (from 1% to 3%), enhance game content creation efficiency, and grow Weixin’s search market share. While the timeline for these benefits remains uncertain, the positive impact on Marketing Services could be substantial.

As a result, FY25e and FY26e revenue forecasts were raised by 1% and 3%, respectively. Gross margin expectations for FY25 were revised up to 55%, and FY26e Non-IFRS EPS was increased by 5% to RMB 30.7 per share. Tencent now trades at a forward P/E of 17x and 14x for core operations.

Chart 5: Rating table and total return

Source: SBG Securities

Summary

President Trump is likely to take steps to calm markets and boost investor sentiment ahead of the 2026 midterm elections. However, we anticipate increased short-term volatility, as it will be challenging to finalize all trade agreements within the 90-day tariff suspension period. This volatility is an opportunity to add high-quality companies to portfolios.

Source: Moneyweb, RMB

Budget 3.0: Calm delivery but a bleak fiscal outlook

The third iteration of South Africa’s national budget was delivered without any last-minute surprises or dramatic policy shifts. There were no unexpected tax hikes or VAT shocks, offering a welcome sense of stability. The hope is that this budget will help unify the Government of National Unity (GNU) and restore a sense of procedural normalcy.

Yet, despite its composed presentation, Budget 3.0 reveals a deteriorating fiscal landscape. South Africa now spends 22 cents of every rand of tax revenue on servicing state debt.

The country’s debt-to-GDP ratio is now projected to peak at 77.4% in the current fiscal year, a significant increase from the 76.2% forecast in Budget 1.0 just two months prior. This 1.2 percentage point revision reflects mounting fiscal pressures.

Finance Minister Enoch Godongwana attributed the higher debt projection to two key factors: the government’s decision to forgo a VAT increase and a downward revision in the country’s economic growth forecast. The Treasury now anticipates GDP growth of just 1.4%, a notable drop from the 1.9% projected in February.

In percentage terms, that’s a 0.5 percentage point downgrade—effectively a reduction of over 25% in the growth outlook.

Trump’s tariffs on South Africa

As tensions between the U.S. and South Africa persist over trade policies and political disputes, President Donald Trump’s imposition of tariffs up to 30% on South African imports, including a 25% rate on vehicles, threatens to unravel the nation’s economy if the appropriate steps are not taken.

The meeting on 21 May 2025 between President Donald Trump and Cyril Ramaphosa was convened initially to ease rising trade tensions. However, it quickly veered off course following Trump’s controversial comments about alleged “white genocide” in South Africa, claims that President Ramaphosa strongly refuted, calling for fact-based discussions instead.

Despite the political friction, Ramaphosa tabled a significant proposal: a long-term agreement to purchase 75 to 100 petajoules of U.S. liquefied natural gas (LNG) annually over a 10-year period, valued between R17.1 billion and R22.8 billion per year. In exchange, he suggested maintaining duty-free access for up to 40,000 South African vehicle exports to the U.S. The conversation also covered the importance of critical minerals to American supply chains. Nonetheless, the meeting concluded without a resolution to the trade impasse. The LNG deal remains under negotiation, and the full imposition of a 30% tariff on South African exports still looms beyond the 4 July, 2025, deadline.

Tarriff impact on South African industries

Automotive industry: A 25% tariff on vehicles and auto parts puts R38 billion in exports at risk. U.S. demand could fall by 20–30%, resulting in annual losses of R7.6–11.4 billion. The sector employs over 120,000 people, primarily in Gauteng and the Eastern Cape, with an estimated 10,000–15,000 direct job losses and up to 30,000 more in supporting industries such as logistics and dealerships.

Agriculture: A 10% tariff, potentially rising to 31%, would severely impact citrus exports, which brought in R2.7 billion in 2023. The Western Cape, which is responsible for over half of South Africa’s agricultural exports, could lose R270 million at a 10% tariff and R830 million at a 31% tariff. The citrus and wine industries face a combined loss of up to 45,000 jobs, with macadamias and table grapes also affected.

Mining: Although strategic minerals like PGMs, manganese, chrome, and gold are exempt due to U.S. supply chain needs, non-exempt commodities such as iron ore and diamonds could face tariffs of up to 31%, impacting R15.2 billion in exports. Indirectly, reduced U.S. auto demand could lower PGM use, costing up to R15 billion and putting 50,000 mining jobs at risk.

Iron and steel: Tariffs between 10% and 31% could raise production costs from R13,300 to as high as R18,620 per ton, threatening up to R4.56 billion in exports. As U.S. buyers turn to cheaper markets like Brazil, 5,000–10,000 local jobs could be lost, especially in Gauteng and KwaZulu-Natal.

Chemicals and machinery: R15.2 billion in exports across these two industries could result in annual losses of R950 million to R2.85 billion due to the tariffs. The resulting pressure could result in the loss of 3,000–7,000 jobs, primarily in Gauteng and the Eastern Cape.

Combined, these pressures could shave 0.2% to 0.7% off South Africa’s GDP growth in 2025. A weakening rand amplifies import costs for fuel and machinery, feeding inflation and placing further strain on consumers and businesses alike.

Long-term outlook

The proposed tariffs could severely disrupt South Africa’s economy, threatening billions in export revenue and putting thousands of jobs at risk across key industries. In the longer term, however, this may prompt South Africa to intensify efforts to diversify its trade partners, particularly through the African Continental Free Trade Area (AfCFTA), and to move up the value chain through increased industrialization and local manufacturing.

While the Trump–Ramaphosa meeting demonstrated an intent to resolve trade disputes diplomatically, it also exposed the persistent political challenges that must be navigated. To safeguard its economic future, South Africa will need a combination of firm diplomatic engagement, adaptive economic strategies, and strong community-led initiatives to build resilience in an increasingly uncertain global trade environment.

Share of the month: Renergen

Renergen shares surge on proposed acquisition by U.S.-listed ASP Isotopes

Renergen’s share price jumped over 70% in May, climbing above R11 per share, following news of a potential acquisition that could reshape its strategic direction and global reach.

Nasdaq-listed ASP Isotopes Inc. (ASPI) has made a formal offer to acquire 100% of Renergen’s ordinary shares via a scheme of arrangement. Under this proposal, Renergen shareholders would exchange their shares for newly issued ASPI shares, based on a fixed ratio of 0.09196 ASPI shares for every 1 Renergen share.

Should the scheme fail due solely to unmet conditions, ASPI will automatically proceed with a general standby offer, allowing shareholders the opportunity to sell their holdings on substantially the same terms.

Strategic merger to strengthen global supply chains

The proposed merger aims to create a globally integrated supplier of critical materials essential for the semiconductor, medical and energy industries. With rising geopolitical tensions and increasing pressure on global supply chains, the combination of ASPI’s enrichment capabilities and Renergen’s world-class helium reserves offers a secure, vertically integrated source of enriched isotopes and helium, materials often sourced from politically sensitive regions.

Both companies believe the merger presents strong growth potential. ASPI has a proven record of project delivery and has already completed three isotope enrichment facilities in South Africa in the past three years. Its local engineering and manufacturing infrastructure may help fast-track project development and reduce costs.

Accelerating Renergen’s growth and improving liquidity

This transaction provides Renergen with immediate access to capital, helping to alleviate liquidity constraints and accelerate the development of its flagship Virginia Gas Project. For shareholders, the deal represents a premium and opens the door to the deeper liquidity and investor base of U.S. capital markets.

The merged entity is expected to benefit from shared customer networks, operational synergies, and broader exposure to high-growth sectors, including artificial intelligence, nuclear energy and advanced manufacturing.

ASPI plans to pursue a secondary inward listing on the Johannesburg Stock Exchange (JSE) to facilitate the cross-border transaction. This would enable South African investors holding Renergen shares on the JSE to receive ASPI shares that are tradeable locally, enhancing market access and liquidity while reinforcing the new entity’s role in the global critical materials supply chain.

If the scheme is successfully implemented:

• Renergen shareholders will receive ASPI shares in accordance with the predetermined swap ratio.
• Renergen will become a wholly owned subsidiary of ASPI.
• Renergen shares will be delisted from the JSE, A2X and ASX.

Implications for investors

For investors, the transaction offers several key benefits. Renergen shareholders will gain exposure to a Nasdaq-listed entity with potentially broader liquidity and greater global investor interest. The merger is designed to unlock long-term value by expanding customer reach, diversifying revenue streams and reinforcing supply chain security across sectors, including nuclear medicine, semiconductors, quantum computing and aerospace.

The two-tier structure, comprising both the Scheme of Arrangement and the Standby Offer, provides a safety net, ensuring that shareholders retain an exit option even if the scheme is delayed due to regulatory or procedural challenges.

Moreover, the combined group’s access to capital, engineering expertise and demand from fast-growing industries positions it well for long-term, sustainable growth.

About ASP Isotopes Inc.

ASP Isotopes Inc. is a development-stage advanced materials company focused on producing enriched isotopes for use across healthcare, technology and energy sectors. The company employs proprietary Aerodynamic Separation Process (ASP) technology and is developing Quantum Enrichment processes to support the nuclear industry.

Strategic focus areas:

1. Medical applications

There is a significant opportunity to become one of the few global producers of medical isotopes in a market undersupplied with this product. The global medical isotope industry, valued at $5.1 billion in 2022, is projected to grow to $11.4 billion by 2032, reflecting a robust compound annual growth rate (CAGR) of 8.8%. This growth is driven by the rising incidence of cancer, increasing demand for personalized medicine, and continued advancements in diagnostic imaging technologies.

2. Semiconductor industry

The global semiconductor market is set to exceed $1 trillion by 2030. ASPI has secured a long-term agreement with a significant global semiconductor manufacturer to supply substantial volumes of Silicon-28 through 2030 and beyond. This will support the industry’s transition to Silicon-28 Nanowires, which offer significant performance advantages in next-generation semiconductor devices.

3. Nuclear energy

ASPI’s subsidiary, Quantum Leap Energy (QLE), is targeting the multi-billion-dollar opportunity within the nuclear energy sector. Through the development and application of its proprietary Quantum Enrichment technology, QLE aims to enrich uranium for use as fuel in next-generation nuclear reactors, positioning the company at the forefront of innovation in clean, sustainable energy solutions.

Morgan Housel’s The Psychology of Money reminds us that some of the highest-return investments aren’t found on a stock exchange, they’re found within ourselves. Lesson 18, “Invest in Yourself,” is about recognizing that personal development, continuous learning, and well-being are foundational to long-term success, not just financially, but in all areas of life.

Investing in yourself starts with education and skill-building. Whether you’re just entering the workforce or well into your career, upgrading your knowledge and refining your capabilities can open doors to new opportunities and increased earning power. This doesn’t always mean formal degrees, it could be learning a new language, gaining a certification, understanding new technology, or simply reading broadly. The marketplace rewards competence, and the more valuable your skills, the more control you have over your financial future.

But this lesson goes beyond professional growth, your health is also a key investment. Physical and mental well-being are often overlooked in financial planning, yet they underpin your ability to earn, enjoy life, and make wise decisions. Prioritizing sleep, exercise, nutrition, and emotional balance contributes to a longer, more productive life. No investment portfolio can compensate for burnout, stress, or illness.

Equally important is emotional intelligence and self-awareness. Developing patience, resilience, and discipline directly enhances your ability to handle financial uncertainty. In fact, many of the principles in the book, from resisting herd mentality to staying calm in volatile markets, require emotional maturity. Cultivating that strength is an investment in your future peace of mind.

Housel also hints at the compounding effect of self-investment. Just as money grows exponentially over time when compounded, so too does knowledge, confidence, and experience. Small habits like reading daily, managing your time better, or surrounding yourself with thoughtful people, may seem minor at first, but their long-term impact can be transformative.

Ultimately, investing in yourself is empowering because it’s one of the few investments entirely within your control. Markets fluctuate, economies change, but the value you bring to the table through your mindset, knowledge, and health is enduring. And perhaps most importantly, this type of investment pays dividends in ways that money never can, in fulfillment, confidence, freedom, and meaning.

Source: Visual Capitalist