The US continued to show signs of a weakening economic backdrop, while US equity markets maintained strength as earnings revisions strengthened. South Africa is ending 2025 strong with improved traction around reforms.
Tech still driving the US market and economy
November data signalled a softening US economic backdrop as consumer confidence measures weakened further and labour demand continued to lose momentum.
Equity markets however remained buoyant. Positive earnings revisions are supporting the S&P500, mostly due to large cap tech. The average US company is maintaining flattish earnings estimates despite the more negative economic outlook.
Bond markets shifted tone during the month. Expectations for interest-rate cuts were scaled back with only 0.75% in reductions expected over the next year after inflation remained elevated at 3%. Affordability pressures will continue to weigh on the average American household, as rising healthcare premiums are expected to offset tax benefits from the One Big Beautiful Bill (OBBB). This dynamic will likely continue to widen the gap between higher-income and lower-income consumers which could shift future consumption trends.
Elevated US valuations coupled with early signs of a potential bubble in parts of the US tech sector are concerning. Against this backdrop, we prefer opportunities outside the US.
Mining outlook remains bright
Our outlook for miners remains positive. PGM’s continue to benefit from resilient Internal Combustion Engine (ICE) vehicle demand and declining mine supply. Battery Electronic Vehicle (BEV) penetration is rising in China, however, is proving disappointing in other regions. In the US specifically, the removal of BEV subsidies has resulted in a significant decline in BEV demand.
Gold remains supported by ongoing Central Bank accumulation, a steady and structural source of demand in a multipolar world. Copper should be supported by an inadequate supply to meet growing global demand over the next decade. Given the high cost of greenfield mines, Glencore may well benefit from corporate action with the low implied valuation of its copper assets.
SA building confidence
South African news flow remained notably constructive in November with improving macro-economic conditions translating into continued strength in the rand and domestic asset markets. SA long-bond yields have retraced to levels last seen over seven years ago, supported by both an improved fiscal outlook and a more favourable global backdrop.
The terms of trade remains robust, helped by firm precious metal prices and subdued oil prices. We expect this momentum to continue, aided by a weaker dollar, sustained deficits in the PGM market and persistent Central Bank gold demand. US rate cuts would provide room for the SARB to adopt a more accommodative monetary policy stance locally.
A clearer commitment from National Treasury to the SARB’s proposed lower inflation target reinforced market confidence and contributed to lower inflation expectations reflected in bond pricing. This was complemented by a fiscally prudent Medium Term Budget Policy Statement. Treasury now projects a primary surplus of 0.9% in 2026, rising to 2.1% of GDP in 2028. This is a significant improvement compared with the last decade. This has also helped drive bond yields lower.
Further tailwinds came from South Africa’s removal from the FATF grey list and a credit- rating upgrade from S&P. Both these catalysts have further helped drive sovereign credit spreads lower.
Looking ahead, SA is poised to deliver a meaningful uptick to GDP growth of 1.5% (Bloomberg consensus estimate) in 2026 helped by improving investment activity. Sustaining this strength in domestic asset prices, however, will require a repeat of this growth performance in 2027, alongside continued fixed investment and improved service delivery.
On the fixed investment front, momentum is slowly building. SA’s largest private rail operator, Traxtion, announced a R3.4 billion investment to double its fleet, adding roughly 5% to the national rail capacity. This is a positive signal and one we hope marks the beginning of boarder infrastructure participation from the private sector.
Favourable ALSI outlook
Within South Africa, we remain more constructive on financials over retailers, where earnings are proving more resilient and valuations remain attractive. Corporate loan growth is strong at 10.3% year-on-year in October, while retail loan growth, although softer at 3%, is gradually showing signs of recovery.
Offshore and dual listed counters, some of which have underperformed, are also mostly high-quality businesses trading on compelling valuations.
The outlook for most commodities mined by JSE-listed miners is favourable, supported by expected supply deficits, rising sovereign debt levels and a changing geopolitical landscape.
