July 2025 Newsletter

Highlights of this month’s newsletter:

“If printing money would end poverty, printing diplomas would end stupidity.“

– Javier Milei, President of Argentina

Market overview: performance figures (%)

Source: Edmond de Rothschild, 01.07.2025

Source: Edmond de Rothschild

As we reach the halfway point of 2025, one word aptly defines global markets so far—volatile. What began as a euphoric surge in US equities turned into a rollercoaster of uncertainty, driven largely by shifting political rhetoric, policy shocks, and geopolitical risks. From optimism around “American exceptionalism” to rising fears of inflation, tariffs, and global conflict, investor sentiment has dictated market direction more than fundamentals.

Despite the initial panic, a strong first-quarter earnings season and a partial reversal on tariffs provided much-needed relief. President Trump’s eventual softening of his trade stance, introducing negotiation windows instead of immediate implementation, was accompanied by announcements of tax cuts and banking deregulation. These policy shifts, along with the continued deceleration in inflation and the resilience of US economic growth, helped fuel a significant rebound in equity markets. By June, US equities had almost recovered to their February highs in dollar terms.

However, despite the recovery in share prices, some companies are still trading at significantly lower valuations compared to January 2025. Graph 1 illustrates this; using Nvidia as an example, showing both its share price and price-to-earnings (P/E) ratio, indexed to 100 at the start of the year. While Nvidia’s share price is currently 14% higher than it was at the beginning of 2025, its P/E ratio has declined by nearly 22% over the same period. This indicates that the company’s earnings have grown faster than its share price.

This example highlights an important point: a rising share price does not necessarily mean a company is becoming more expensive. In Nvidia’s case, improved earnings have led to a more attractive valuation, despite the increase in its stock price.

Graph 1: Nvidia’s price to earnings ratio (green line) vs share price performance (blue line)

Source: LSEG

Looking forward, several disruptive factors threaten the fragile recovery:

1. Middle East tensions: The ongoing conflict between Israel and Iran, while not currently at the forefront of market pricing, remains a significant risk should it escalate and draw in major powers.
2. Debt ceiling and Treasury issuance: The recent $4 trillion increase in the US debt ceiling means a surge in Treasury issuance is imminent, particularly in longer maturities. With yields approaching 5%, this could siphon liquidity from equities.
3. Tariff moratorium expiry: The 90-day moratorium on reciprocal tariffs ends on 9 July, with negotiations stalled across most major trading partners—except the UK. Trump’s confrontational style suggests a high risk of renewed tariff threats, particularly targeting Europe.
4. Inflation outlook: While inflation remains subdued for now, early warnings from major retailers such as Walmart and Best Buy, along with Fed reports, suggest that input cost pressures are building.
5. Germany’s fiscal pivot: The German government’s commitment to increase defence spending, financed by borrowing under revised debt brake rules, marks a significant policy shift. This could put upward pressure on Bund yields and affect broader eurozone markets.

This year has reminded investors of a few timeless market lessons:

• Recovery timing is unpredictable: Trying to time market rebounds is a fool’s game.
• Staying invested pays off: Investors who held their positions through the downturn have seen a recovery in value.
• Markets recover: Despite the speed and severity of selloffs, historical precedent suggests recovery is the norm—not the exception.

The Eurozone remains attractive, although not as compelling as it was in 2023. Our investments in European defence and infrastructure companies have delivered solid returns, driven by significant spending commitments from European governments (graph 2) in these sectors. While we continue to see opportunities, the valuation gap has narrowed, and the investment case is now more selective.

Graph 2: Germany to increase defence spending more rapidly than France or the UK

Source: Investec

Conclusion

As we move into the second half of 2025, volatility is expected to remain a defining feature of the markets. Although recent gains in equities are encouraging, they are built on a fragile foundation, with ongoing risks including renewed tariff tensions, geopolitical instability, and inflationary pressures.

We view this environment as an opportunity. Periods of market panic often create attractive entry points to invest in high-quality companies at more reasonable valuations. Remaining calm, avoiding reactive decisions, and exercising patience are essential to achieving long-term outperformance.

Source: Moneyweb, SARB

South African equities delivered a stellar performance in the first half of 2025, with the All-Share Index gaining 15%. This strong return was primarily driven by the resources sector, which soared 48% over the period, benefiting from a rebound in commodity prices and improved investor sentiment toward emerging markets.

The U.S. dollar has depreciated approximately 9% YtD amid a broad-based “sell US” narrative. South African equities have been key beneficiaries of this shift, bolstered by renewed appetite for risk and improving terms of trade. Importantly, valuation indicators continue to favour the rand: various models suggest the ZAR is around 10% undervalued against the dollar. Despite ongoing concerns, South Africa’s terms of trade remain underappreciated, and we believe there is still room for a catch-up trade in both equities and the currency.

PGM Market: Stabilisation after a deep correction

After a prolonged downturn, the platinum group metals (PGM) market is showing signs of recovery. Platinum prices recently touched a four-year high above $1,125/oz, marking a near 20% YtD gain. Rhodium and palladium have also seen encouraging rebounds, rising over 15% and 8%, respectively.

One of the main drivers behind this recovery is the sharp contraction in recycled supply, particularly from the United States, the world’s largest source of secondary PGM material. Lower prices have pressured recycler margins, while a slowdown in vehicle replacement has reduced the flow of used catalytic converters into the supply chain.

On the demand side, China is playing an increasingly pivotal role. Surging gold prices, which recently surpassed $3,500/oz, have prompted a shift among Chinese consumers toward platinum jewellery, which trades at a substantial discount. Given that jewellery accounts for roughly 25% of total platinum demand (according to the World Platinum Investment Council), this trend is significant.

Industrial dynamics are evolving as well. Chinese manufacturers have begun substituting platinum for rhodium in fibreglass production, easing pressure on rhodium demand. Meanwhile, the expected dominance of battery electric vehicles (which require no PGMs) has not materialised as quickly as forecast. Instead, hybrid vehicles, which still rely heavily on PGMs, are gaining market share.

While the PGM complex experienced a sharp correction after peaking in 2021 and holding up through much of 2022, the combination of tightening supply, shifting demand trends, and a more balanced market outlook is fuelling renewed optimism in the sector.

Gold: Constructive backdrop remains intact

Despite recent geopolitical tensions, particularly between Israel and Iran, the gold market has responded with relative restraint. Unless the situation escalates further, the conflict is unlikely to drive sustained price appreciation. Nevertheless, the broader fundamental backdrop remains supportive of gold, and we maintain a constructive outlook.

Graph 3: Gold and platinum group metals outlook

Source: Topdown Charts

The South African market and valuations

The South African Reserve Bank has cut the repo rate by 25 bps to 7.25%. The bank revised down its estimates of growth and inflation for this year and may announce a new lower inflation target of 2-4%, in line with emerging markets. Another 25 bps rate cut could occur later this year, given current trends.

Valuations across emerging markets remain appealing, with the MSCI EM index trading at a 12-month forward P/E ratio of 13.3x. South African equities are even more attractively priced, trading at a 12-month forward P/E of just 10.9x, around one standard deviation below the broader emerging market average.

This discount comes despite a constructive earnings outlook. South Africa’s corporate earnings are expected to grow at a compound annual rate of 11% from 2025 to 2027.

Graph 4: The JSE All-Share index 12-month forward P/E ratio

Source: RMB

Share of the month: ServiceNow

ServiceNow (NOW) is a leading enterprise software company offering an AI-powered platform designed to transform business operations. Its flagship product, the Now Platform, is a cloud-based solution that digitizes workflows and integrates people, processes, data, and devices to enhance productivity across public and private sectors.

The platform supports four core workflow areas:

• Technology: Streamlines IT service management, operations, and business management.
• Customer & industry: Enhances customer experiences through automated service management.
• Employee: Simplifies employee service access and HR processes.
• Creator: Empowers users to build custom workflows with low-code tools.

All applications run on a single, unified cloud platform with shared data models and services, including analytics, service catalogs, encryption, and collaboration tools.

Key product suites include:

• IT Service Management (ITSM): Automates and manages IT services.
• IT Operations Management (ITOM): Connects and controls on-premise and cloud IT infrastructure.
• IT Business Management (ITBM): Aligns IT projects with strategic business goals.
• Customer & field service: Automates customer case handling and field service deployment.
• HR service delivery: Manages employee lifecycle events and HR requests.
• Security operations & compliance: Responds to threats and manages risk and regulatory compliance.

ServiceNow is positioned at the intersection of workflow automation, AI, and cloud innovation, enabling businesses to operate smarter and faster.

ServiceNow benefits from a wide economic moat, primarily driven by high customer switching costs. It’s core subscription business, the engine behind its growth and profitability, anchors this competitive advantage. Once integrated, the platform becomes deeply embedded in enterprise workflows, making it costly and disruptive for customers to switch to another provider.

While the smaller services segment does not contribute to the moat, it remains a minimal part of overall revenue. ServiceNow’s strong positioning and stickiness should enable the company to consistently earn returns above its cost of capital for the next two decades.

Financial Strength

ServiceNow remains in a strong financial position, underpinned by rapid revenue growth and expanding non-GAAP margins. The company’s core ITSM and ITOM offerings continue to gain traction while growing adoption in areas such as customer service and HR service delivery is expected to fuel sustained growth over the next five years.

As of December 31, 2024, ServiceNow held a net cash position of $4.3 billion (comprising $5.8 billion in cash and $1.5 billion in debt), with gross leverage at just 1x trailing EBITDA, providing it with ample financial flexibility.

Operating margins are steadily rising, with 2024 free cash flow margins reaching 31%, reflecting the company’s scale and efficiency gains. Management is targeting an annual margin expansion of 50–100 basis points in the future.

Fair Value & Growth Drivers

We estimate the fair value of ServiceNow at $1,010 per share, reflecting a 2025 EV/sales multiple of 15 times and an adjusted P/E of 60 times. Strong growth prospects and robust margins support this valuation.

We project a five-year compound annual growth rate (CAGR) of 18%, with subscription revenue driving the bulk of this expansion. Growth will be fueled by a combination of new customer acquisitions and rapid upselling, including more user seats, advanced features, vertical-specific solutions, and newer offerings such as generative AI tools.

Key contributors to future growth include customer service, HR service delivery, security operations, and the core Now Platform. As ServiceNow scales, we expect non-GAAP operating margins to increase from 30% in 2024 to the mid-30% range, driven by operational leverage and the growing adoption of premium solutions.

Leadership & governance

ServiceNow demonstrates strong corporate governance with no significant concerns. Now an actual large-cap enterprise with nearly $10 billion in annual revenue and expanding margins, the company continues to consolidate its market share in IT service management (ITSM) and broaden its footprint in enterprise workflow automation.

CEO Bill McDermott, who joined the company in 2019 after leading SAP, brings deep industry experience and a strategic vision. Under his leadership, ServiceNow has accelerated its platform expansion and growth. CFO Gina Mastantuono, appointed shortly after McDermott, previously served as CFO at Ingram Micro. She has since improved transparency, streamlined operations, and contributed to margin expansion.

Overall, we hold ServiceNow’s management team in high regard, citing their strong execution and leadership both within the company and in prior roles.

Graph 5: Peer analysis for ServiceNow

Source: LSEG

Mistakes are an inevitable part of managing money, and according to Morgan Housel, they’re not something to fear but something to learn from. In The Psychology of Money, Housel highlights that even the best investors, economists, and financial planners occasionally make poor decisions. The difference is that successful people treat mistakes as tuition, not as failure.

This lesson is grounded in humility. Housel reminds us that the financial world is uncertain and constantly changing, and no one, no matter how smart or experienced, can predict everything. Investments will go awry, budgets will be breached, and economic surprises will arise.

What matters is how we respond. Instead of being paralyzed by regret or shame, we should aim to analyze what went wrong and extract clear lessons that make us better decision-makers moving forward.

One of the most valuable aspects of learning from mistakes is that it leads to wisdom that sticks. While you can learn from books or others’ experiences, your financial missteps often leave the strongest impressions. If you’ve ever overspent on a credit card, panicked during a market dip, or invested based on a hot tip, you likely remember the emotional (and financial) cost, and those lessons help you avoid repeating the same behavior.

“You can be wrong half the time and still make a fortune, because a small number of big things account for most of the results.”

Housel also emphasizes the importance of forgiveness and adopting a broader perspective. Money mistakes don’t define you. Everyone has their version of a financial error, whether it’s not saving early enough, taking on too much debt, or investing in something they didn’t understand. The goal is not to be perfect but to be adaptive. As Housel says throughout the book, long-term success in personal finance is about endurance, not brilliance. Learning from your stumbles is what keeps you in the game.

It’s also essential to create space in your financial life for inevitable missteps. This is where building a margin of safety, holding extra savings, diversifying investments, or making conservative assumptions helps cushion the impact when things go wrong. Mistakes don’t hurt as much when your overall plan is designed to absorb shocks.

In short, Lesson 19 is about embracing mistakes not as failures but as stepping stones to becoming wiser, more resilient, and more thoughtful with money. As Housel’s writing often reflects, it’s not about never getting it wrong; it’s about learning faster than the cost of being wrong. The best investors and financially grounded individuals aren’t flawless; they’re self-aware, curious, and constantly improving.

Source: Visual Capitalist