Investment Outlook Q4 2025

bespoke62
2 days ago
8 min read

What is on the other side of the wall of worry?

The past year has reminded investors that markets can climb a wall of worry even as the news cycle feels unsettled. Artificial intelligence has remained the dominant capital spending theme, equity leadership has narrowed, and safe-haven demand has driven gold to repeated highs. Away from the headlines, the mechanics that ultimately compound client wealth have been more prosaic: starting valuations, real cash yields, and decent, if uneven, earnings delivery. Our job is to translate this mosaic into sensible positioning that preserves options: participate when risk is rewarded and protect when the payoff isn’t compelling.

Market overview

Global equities enter 2026 on strong trailing returns but with unusually narrow leadership at the index level. After three consecutive years of strong returns, the question around where we are in the cycle becomes even more relevant. Outside the US, developed markets screen closer to fair value after a strong year, for once outpacing the US markets. Emerging markets have repaired and were standout performers, but they remain selection-driven.

Overall, the picture is “fair to expensive”, which warrants careful consideration of positions held.

South Africa continues a quiet repair: disinflation progress, better-than-feared power availability, and improved policy signalling have supported local asset returns. Real cash yields remain attractive, even as a gradual cutting cycle begins.

You may be surprised to find out that local equities have delivered returns above inflation of CPI + 7.6% per year for a decade! This is slightly above our long-term target, but also an outcome which many thought impossible in our economic and political climate. This achievement goes a long way to help investors realise their investment goals.

However, this good fortune was achieved through markets climbing the proverbial wall of worry: significant political shifts globally; excessive debt levels; war and threats of war; tariffs; concerns around an AI bubble and countless other risks which stand out and serve to undermine confidence. We are in an environment where investors face a two-pronged challenge. They must manage heightened levels of fear while also recognising that they have made excellent returns and want this to continue.

How does a market climb this wall of worry? Genuine economic activity to start, and then a fair dose of positive sentiment, where nothing else breaks the system. The difference between these two sources of return is that the economic activity, such as earnings and innovations like AI, provides a tangible source of value. In contrast, the sentiment component of your return can easily evaporate if the prospects change. We have had a lot of both. The question now becomes centered on trying to identify where the investment ’fake news’ is masquerading and which parts may derail returns in future.

When markets rise as strongly as they have, it is enticing to simply cut back and bank the profits. However, when we assess the positive aspects of the global economy that could support a continuation of returns, we find a fair amount of encouraging news. This provides a basis for maintaining a constructive view on investing, even after a period of strong returns. Likewise, we need to balance this with the bad news: the headwinds which could cause things to moderate or decline, as they do in any normal investment cycle. The table below illustrates this balance:

The drivers are relatively balanced, despite the tendency to worry more about the negatives than to have optimism around the positives.

Adding an additional frame onto this assessment is the concept of a single point of failure. For instance, the banks brought down the house in 2008 via mortgage-backed securities and manipulation of credit ratings. Today, the banking risk looks lower because of past bad behaviour and stricter regulations that followed. This raises the question of where the single point risk sits today. There are companies such as ASML and TSMC that are instrumental in feeding the global technology supply chain, and NVIDIA can be included in that group as well. These are all systemically important companies, and any material issue affecting them is likely to damage investment prospects en masse. Concentration also extends beyond companies to power, cooling and grid capacity, which can create bottlenecks that either widen or ease the AI CapEx cycle.

Global debt levels are ever-present in any risk assessment, and debt is still one of the main causes of business and economic failure. Governments are trying various ways to manage their debt burdens, but we are still a long way from having them under control. The most likely path we are on is to allow inflation to erode the real value of debt by running cash rates below inflation. This pushes investors toward equities and other physical assets and shifts wealth from savers to the government. When imbalances like this occur, you need to be extra careful in understanding the return dynamics at play.

While debt is often the trigger for an economic failure, this time it could be the equity market which is the culprit. Over half of equities in markets such as the US are now managed passively, or by some other version of a rules-based software program. Investment decisions for this cohort of asset owners can add risk to the system. We have seen escalations in volatility across markets as a result, and with the extent of interrelated connections via the equity market, the good actor helping inflate returns could also be the bad actor compounding disappointment.

‘Real assets’ – commodities, property and the like, remain a compelling diversifier to elevated equities, and income assets set up to lag inflation over the medium to longer term. Global property has been off investors’ radar for some time, with material performance lag versus the equity market, but could be back in vogue as interest rates decline and investors search for alternatives.

Where this puts us from an overall perspective when considering a balanced view

We remain generally positive on expected equity returns, but where specific concentration risks in the US have been mitigated. On a normalised basis, US equity market returns are expected to lag cash returns over the next decade. While you can still make good returns in select US equities, the entry point valuation allied to the overconcentration in a few holdings is a risk worth mitigating, despite positive news flow.
SA equities still offer compelling value but in smaller pockets of opportunity; the commodity shares have delivered strongly, but now it is up to the domestic economy to support future returns.
Avoid global bonds for the most part: yields are not attractive enough, particularly with normal to higher potential inflation. High debt levels are not a good environment for the default low-risk asset.
Local cash and income remain compelling, with our inflation lower than 4%, and with a new 3% inflation policy target in sight. Local bonds have delivered outsized returns, with several drivers including profits from the miners, better fiscal diligence, lower perceived risk attached to SA and a lower inflation target. Lastly, foreign investors have swarmed back into SA bonds over the past year, earning a 42% return in USD over the past year.

This supports a case to remain close or fully invested across equity and income assets, provided these issues above have been mitigated. This is not to say there won’t be the usual market volatility, but that it is still quite feasible to build a well-diversified portfolio of attractively valued assets which can deliver over suitably long investment horizons.

Gold

Gold’s role in portfolios is insurance first, return-seeking second. After an extraordinary 2025, the near-term path is likely to be volatile, but the structural case has strengthened: persistent geopolitical risk, elevated policy uncertainty, continued central bank buying, and a drift toward lower rates all support a higher clearing price over time. The question is, has that price been reached already? Many managers are voting with their feet and trimming exposures, but keen to buy it back at more attractive prices as confidence in the traditional haven assets weakens.

Currencies

There is much angst around the long-term future of the US Dollar as a reserve currency and store of wealth. And yet it hasn’t really failed, despite underperforming the lowly ZAR over the past decade! The USD remains the reserve currency, with the EUR the other primary. There are longer-term threats that a market like China is sufficiently large and organised, and is in effect forced to establish its own trading blocs, which supports a case for more global trade and preservation of wealth in Renminbi. But it is currently very small in the scheme of things.

That does not mean the USD can’t be over- or underpriced. We could still see USD weakness, and this could play out over several years, but this also depends on other countries driving an improvement in their own domestic economic conditions. Currencies like ZAR, EUR and GBP look close to fair value, while the Yen is meaningfully cheap but would require material rate hikes, ideally at a time when the Fed is cutting interest rates, to change this dynamic. Overall, it makes sense to diversify currency exposure at present, to balance the risks across markets which are heightened. And remember, ZAR pays interest while you wait.

Portfolio insights

Global equity: what worked in 2025, and what didn’t

Outperformers

QXO — beneficiary of a consolidation strategy in building-products distribution under a proven operator; strong operational momentum and fresh growth capital supported the rerating.
Alnylam — RNAi leader with a step-change in revenue; credible path to scale aided sentiment.
SK Square — NAV accretion from aggressive buybacks and SK Hynix (semiconductors) exposure; corporate actions narrowed the discount.

Detractors

The Trade Desk — an advertising-based technology company; growth decelerated and competition in connected-TV intensified, driving a severe de-rating despite healthy retention.
Fiserv (finance infrastructure) — an earnings miss and leadership changes caused a sharp drawdown.

South African portfolios

Winning positions in Northam and Prosus reflected commodity-cycle leverage and China-tech exposure; detractors included Gold Fields (underweight positions) and Spar, where company-specific challenges weighed.

SA listed property: where things stand

The sector’s recovery broadened in 2024 and continued into 2025 as lower bond yields fed through and balance sheets improved. Dividend growth is returning across several counters, though dispersion remains high.

Global portfolios are overweight healthcare and underweight tech

As a result of fund selection, global portfolios have a bias towards healthcare. Healthcare provides three attractive aspects late in a cycle: resilient cash flows, pipelines that are not directly tied to GDP, and reasonable valuations versus long-term growth. Large-cap pharma such as GlaxoSmithKline offers exposure to vaccines and specialty medicines with defensible moats and improving R&D productivity. In a world where parts of tech are priced for perfection, healthcare helps diversify equity risk while still offering innovation-linked upside.

Portfolios are net lower on technology shares than the market, with managers preferring to selectively access who they perceive as the winners.

Asset class outlook changes

Downgrade to the ZAR-USD currency rate from [+2] to [0]. ZAR strength on improving prospects while USD weakens.
Downgrade to global bonds. Yields too low, debt too high, inflation risks to the upside.

Final thoughts

The outlook remains supportive, but with a fairly healthy dose of caution, best applied through diversification: funds, styles, regions, currencies and industry and issuer exposure. A handful of counters grab the headlines, but in 2025, the returns were made under the radar and spread broadly across assets and regions. We could see a similar outcome this year as well.

The wall of worry is always there, and the most useful way to deal with it is to distinguish between short-term events which don’t derail the system, and then those single points of failure which can lead to an extended winter as far as investing goes. We can’t foresee what these failure points will be or when they will happen. This is why we prepare ahead of time through sound diversification and the selection of high-quality funds within a consistent portfolio framework. This is our daily focus: understanding the market, understanding the funds, understanding the dynamics at play between the moving parts, and then acting accordingly, in an informed and measured way.

Asset Class Outlook