‘Pleasent surprises’ coming for investors in South Africa

South African investors have reason to be optimistic despite global and local challenges.

This is according to PSG Wealth’s Chief Investment Officer Adriaan Pask, who noted that market conditions have shown significant improvements, especially in key asset classes such as bonds and property.

Economic indicators also suggest a more favourable climate ahead, provided investors remain strategically positioned and maintain a well-diversified approach.

“Despite initial concerns about inflation and interest rates, South Africa’s markets demonstrated resilience in 2024,” said Pask.

“Local bonds outperformed expectations, proving to be one of the strongest asset classes of the year, while the property sector experienced a notable resurgence.”

“Lower interest rates and higher long-term bond yields created attractive property deals, which in turn led to capital appreciation.”

Although South African equities did not match the strong performance of US equities, they still fared well, given the political and economic landscape.

Pask noted that investors often compare their portfolios to the S&P 500, but the sustainability of US equity valuations remains a concern.

The concentration risk in the US stock market, especially within the Magnificent Seven that includes Meta, Tesla, Nvidia, Apple and more, raises questions about potential corrections.

US debt levels and high borrowing costs also present a growing challenge.

This means that while US markets have been robust, investors should be cautious over their long-term trajectory.

On the other hand, local asset classes have been re-rated, with prices increasing and significant potential for further strong performance.

“Yields on corporate and government bonds, as well as listed property, remain above historical norms, offering promising opportunities,” said Pask.

“The inflation outlook in South Africa is also encouraging, currently sitting near the lower end of the target range.”

“This provides the Monetary Policy Committee with room to foster economic growth while improving investor sentiment both locally and in emerging markets”

One of the biggest surprises of 2024 was the improvements at Eskom and Transnet.

These improvements boosted investor confidence. Poor sentiment has historically surrounded infrastructure and governance issues, which weighted down valuations.

The creation of the Government of National Unity (GNU) has also created a more balanced and rational decision-making process, which has encouraged a more measured approach to policy implementation.

The impact of these shifts is already being felt as capital begins to flow back into South African markets, which has further supported economic recovery.

Still risks

Although there are many reasons for optimism, there are still several potential risks, including an uncertain global economic environment, especially a slowdown in the US.

“A weaker US economy is often viewed negatively, but from a South African portfolio perspective, it could offer relative advantages given current market positioning,” said Pask.

Looking at the USA, the path of interest rates, the cost of financing debt, and the political dynamics following the US election are seen as major risks.

Moreover, China’s economic recovery presents an area of uncertainty. Although it has the potential to surprise positively, ongoing struggles in the real estate sector remain a concern.

Europe is also in a challenging position, with investors looking more at risks than attractive valuations.

“For South Africa, the outlook hinges on continued structural improvements and economic policy execution. Inflation trends are also crucial – lower inflation, coupled with stronger nominal growth, could result in a positive economic surprise in 2025,” said Pask.

“However, these improvements must translate into tangible outcomes to sustain investor confidence.”

That said, South Africa enters 2025 in a much stronger position than many had previously expected.

The combination of structural improvements, favourable inflation trends, and improving investor sentiment creates a compelling investment landscape.

Pask noted that global risks remain, but the potential for upside surprises is still equally strong.

“As always, the key to navigating market uncertainties lies in maintaining a well-diversified and strategically positioned portfolio.”

“Investors should remain open to opportunities, particularly in areas where valuations appear attractive despite perceived risks.”

“With careful positioning, 2025 could be another year of strong investment performance for those willing to take a long-term perspective.”