By PPS Investments
Given the current market environment, investors should prepare for modest central bank easing and steady economic growth in 2025 while remaining mindful of inflation risks that lean to the upside. A pro-growth portfolio strategy is essential, but flexibility and adaptability are equally critical to navigating a shifting landscape.
For example, recent developments, like the US election, could shape future economic policies, contributing to market volatility in the near term. Rather than focusing on a single outcome, investors should consider multiple scenarios to account for uncertainty.
On a positive note, the normalisation of interest rates and an expanding range of opportunities beyond equities make diversification more accessible than before, offering investors a solid foundation for building resilient portfolios.
What’s next for Local and Global Equities?
The outlook for South African (SA) equities is positive, as economic growth is expected to pick up, supported by less restrictive monetary policies. However, Donald Trump’s victory poses a challenge for emerging markets, potentially impacting market sentiment and valuations, even with the potential for earnings growth and attractive valuations.
The dollar-bullish stance of US policy under Trump could create headwinds for emerging markets and their currencies. As a result, we’ve reduced our exposure to SA bonds following a strong rally and rather focusing more on SA equities for exposure to local risk.
Balancing Growth and Value
Our portfolios maintain exposure to both growth and value strategies, and we expect both to perform well in 2025. Growth stocks are likely to thrive in a declining interest rate environment, as they tend to act like long-term assets. This could particularly benefit US tech stocks, which are heavily dominated by large-cap growth companies.
However, the market is currently at its most concentrated level in decades, suggesting that broader diversification may take place. Small-cap stocks, which are attractively valued, could see opportunities if Trump advances his proposed tax cuts and deregulation plans. This makes them a strategic addition for investors looking to balance growth and value exposure.
Hedge funds: SA’s hidden investment gem
We’ve increasingly focused on SA alternative assets, particularly the skilled hedge fund managers in the local market. With SA stocks previously underperforming, we diversified by adding alternative sources of return to our portfolios.
The outlook for SA hedge funds remains positive, supported by an expanding opportunity set this year. Additionally, we’ve made selective investments in private equity, providing further exposure to growth assets as the environment improves with better growth prospects and lower interest rates.
Investment opportunities in global markets
In 2025, the US stands out among developed markets, driven by strong economic policies focused on deregulation, tax cuts, and higher tariffs. These measures, along with a stable dollar, support US market strength, reflecting Trump’s focus on stock market performance.
In emerging markets, initial optimism from China’s economic stimulus has faded, dampening the overall outlook. To address challenges in its real estate sector and boost growth, China may need to implement more aggressive fiscal policies. In the meantime, investors might explore other attractive opportunities within the emerging market landscape.
BUSINESS REPORT