John Gilchrist, Chief Investment Officer at PSG Asset Management

South African investors have actually had it surprisingly good from a return perspective in recent years despite unprecedented levels of global uncertainty and volatility.

Casting our minds back just over a year for example, the outcomes we see today seemed far from likely. The first half of 2024 was nerve-wracking, with South Africans heading to the polls in May for a hotly contested election that had a not-insignificant probability of ending in a populist-leaning coalition government. After record levels of load shedding in 2023, 2024 seemed poised to continue the trend with ongoing rolling blackouts that clouded the country’s economic outlook in the first quarter. Fast-forward to the second half of 2025, and the returns investors have achieved mask the anxiety many have endured.

Various ASISA fund category averages and inflation (CPI) per annum over various periods

Source: Morningstar, as at 30 June 2025. Performance is for illustrative purposes only.

Over one, three and five years, all of the fund categories shown above, which include some of those most popular with SA investors, have substantially outperformed inflation. Over one year, the exceptional real returns delivered by low-risk options (money market and particularly income funds) are evident. But even taking a 5-year view, all the asset classes have delivered in line with, or ahead of, the financial planning assumptions generally employed by advisers (with equities delivering a 9% p.a. real return). And yet, investors remain anxious and concerned.

Why the sense of disquiet?
Part of the reason why investors remain concerned, is the pervasive sense that a decades-long world and economic order is in the process of being upended. And while it seems certain that the world is changing, the outcome is as yet unknown. But what, if anything, can investors learn from the past years’ experience?

Firstly, those who hid in cash have missed out on some excellent returns. While sentiment can become overwhelmingly negative, it is important to assess matters objectively and to avoid emotional decision-making. Sentiment is often reflected in markets, making periods of heightened pessimism often the best buying opportunities, while periods of excessive bullishness could prove to provide expensive entry points.

Secondly, the market is not the economy. Over the last year, relatively little has changed for the economy, with the growth outlook cloudy, and the Government of National Unity (GNU) coalition fragile. Yet the FTSE/JSE All Share Index returned 25.2% over the 1-year period, 17.8% p.a. over 3 years and 16.4% p.a. over 5 years (to 30 June 2025).

Focusing on what lies ahead
Looking ahead, the local environment remains uncertain, and perhaps at a global level, things have become more uncertain. We believe that a fundamental restructuring of the global world order is underway, accompanied by a long-overdue restructuring in global markets to address long-standing macroeconomic imbalances. Current market volatility is being driven by deep-seated forces and not just changes in sentiment, with vacillation on economic policy and shifting political alliances exacerbating the uncertainty.

Trying to time markets is not a sound strategy (as the last year has proved), but investors should also not turn a blind eye to a fundamental reordering in global markets. Rather, they should aim to take advantage of potential opportunities while ensuring portfolios are well protected. As always, careful diversification remains key, but this should not be taken at face value. With concentration levels in indices having increased substantially over the past decade, it cannot be assumed that simply buying the index will result in well-diversified portfolios. With certain global markets still being expensively priced, investors need to carefully consider the implications of a changing environment for their portfolios and seek to ensure that they have exposure to assets that are likely to perform well in a future world that could be quite different to that of the past. While inflation locally seems set to remain contained, many developed market countries in particular could experience higher inflation – and interest rates – than they have been used to in the past decade. This will have profound implications for which assets perform well, and which don’t.

Exploit the window of opportunity while it lasts
Despite this, we see high levels of complacency among investors, meaning that they have been slow to adjust portfolios to changing market dynamics, perhaps expecting things to revert to the status quo. Nonetheless, fundamentals cannot be ignored indefinitely, and so investors have a brief window to ensure their portfolios are optimally positioned to navigate the challenges that lie ahead. We believe price-conscious, bottom-up stock pickers like PSG Asset Management are especially well positioned to exploit the opportunities currently available in the market, many of which are being systemically overlooked by investors due to deeply ingrained biases.

In South Africa, high real returns from fixed income provide a welcome buffer to investors and can help to offset volatility in the rest of their portfolios. We also continue to find attractive opportunities in equities, both locally and globally, by looking beyond popular index constituents that are often trading at extreme valuations. Undervalued assets have the ability to rerate, even if the broader environment is challenging. The rally SA assets experienced following the formation of the GNU, offers a good example of what is possible. From this perspective, we believe the sun could still shine on SA investors and there remain opportunities to earn acceptable returns, regardless of the uncertain macro environment. However, investors need the courage to remain invested and make hay while the proverbial sun shines.

Don’t let uncertainty dissuade you from investing
We firmly believe there are always opportunities for astute investors. However, approach the market with caution, and ensure you take a considered approach. Not all strategies will be equally successful going forward, and you want to ensure you partner with an experienced investment manager who has a proven track record of selecting hidden gems and constructing robust portfolios that deliver on investor needs in the long run.