Entering the final quarter of 2025, South African investors have enjoyed strong returns, with local equities up nearly 30% and bonds delivering double-digit gains.
Despite global uncertainty driven by shifting tariffs and uneven growth, PPS Investments’ diversified, cautiously optimistic strategy has supported inflation-beating performance and positioned its Solutions competitively across all investment horizons.
The turmoil with regard to changes in global tariffs has meant that uncertainty prevailed in global markets and the MSCI ACWI delivered a roughly 8% return in rands, while the FTSE World Government Bond Index was negative in rand terms.
PPS Solutions has maintained an overweight position in local equities since the 2024 elections, resulting in not only strong short-term performance but also inflation-beating returns over respective investment horizons and the longer term. The lingering question now though, is whether local markets are due for a correction.
Local earnings growth has remained above 20% over the past year, resulting in valuations staying below long-term average levels even after the sharp price increase. This does not answer the short-term correction concern, but is a good indication of a favourable starting point for long-term equity returns.
Maintaining a cautiously optimistic asset allocation — reflected in the overweight equity exposure and sizable cash holdings across the PPS Solutions range — has kept the range competitive relative to peers across all periods. In the lower-risk Solution, where risk mitigation is prioritised, short-term performance marginally lagged peers given its lower allocation to risky assets to outperform the inflation target.
Markets remain steady
Looking forward, markets will be buoyed by the IMF upgrades to its growth forecasts, after a period of US recessionary concerns. Locally a modest improvement to growth appears likely which could curtail some concerns, but still points to a somewhat lukewarm outlook.
Central bank policies across the world will remain important, as the US reignited its cutting cycle at the most recent Federal Reserve meeting, with the prospect of more cuts to follow. After five interest-rate cuts in South Africa, the Monetary Policy Committee paused the cutting cycle at its last meeting, although forecasts suggest that cuts may resume, especially as inflation remains relatively low.
Asset-allocation changes are therefore unlikely during the fourth quarter if the current economic conditions persist. The differential between the potential yield in cash and bonds may allow an opportunity to increase bond exposures, but this is likely to be at the margin if at all.
Even though local property has had periods of strong performance more recently, there is very little difference between property and equity returns over three and five years and the relative stability of equities is preferred.
Globally, equities remain expensive, although certain regions show better valuations while bonds offer a reasonable yield but remain susceptible to tariff uncertainty.
So far, 2025 has served as a reminder that markets can perform well even when economic conditions appear uncertain. This year has also shown investors that local markets can experience periods of significant outperformance relative to global markets, underscoring the importance of maintaining a diversified portfolio.
As multi-managers, PPS Investments embeds diversification across its Solutions, enabling it to take advantage of areas of the market that are often overlooked.
