Investors face an uncertain market environment that demands responsiveness and discernment, in a context where a 9.8% (circa CPI+5%) return is regarded as modest by local standards. Macro risks and policy shifts at levels not seen in decades, in addition to market forces which have changed dramatically, require a proactive approach to managing capital and, importantly, managing shifting correlations and risk exposures within portfolios.
A recent example is the concentration risk in South African equities. Approximately 24% of the JSE All-Share Index is concentrated in precious metals counters, which are largely driven by macro drivers rather than company-specific fundamentals. This highlights the risks associated with static allocations, rather than faster, more dynamic portfolio management. These dynamics also underscore the importance of a proactive and informed approach to portfolio management.
We see volatility as a source of opportunity, not a threat. This disciplined approach focuses on sustainable outcomes, favouring investors who act with agility, conviction, and a sharp focus on risk to capture lasting returns.
The value of global partnership and local insight
Globally, capital is abundant, supported by ongoing fiscal stimulus, easy money and limited credit stress, which would put upward pressure on the cost of capital. In some countries, monetary stimulus remains (despite concerns about inflation). However, only those investors who can actively manage risk and correlations within and between asset classes will fully benefit from these conditions. STANLIB Asset Management’s partnership with J.P. Morgan Asset Management (JPMAM) is a deliberate and additional response to a rapidly-evolving investment landscape.
By managing a portion of the offshore allocation of many of our funds, JPMAM provides access to global research, tactical asset allocation insights, and a broader set of opportunities than we would typically be able to achieve on our own. They also provide the conviction needed in today’s markets. Their insights are particularly relevant as economic nationalism, fiscal activism, and technological innovation are reshaping investment fundamentals and market behaviour. Those fundamentals currently look meaningfully different to previous decades, while equity valuations appear somewhat elevated.
JPMAM’s analysis indicates that a traditional 60/40 equities and bonds portfolio can still achieve 6.5% annual returns for global investors (in dollars). But to reach the historic “bogey” that many investors need to grow their wealth in real terms requires active tactical management, rigorous security selection, and in some cases embracing alternative, non-traditional approaches. The era of passive set-and-forget investing has passed – which the STANLIB Multi-Asset team has been saying for many years. Structural themes such as artificial intelligence, shifting fiscal policy and a new geopolitical and geoeconomic environment, are likely to influence returns for years to come.
Opportunities and risks
The outlook for the next year is constructive, especially for technology and select regions within global equities. The “Mag Seven” US technology shares, for example, command premium valuations, supported by robust earnings and cash generation. While increased capital expenditure by US tech giants may necessitate new debt issuance, this is a manageable risk rather than a systemic concern.
Europe, meanwhile, is at a pivotal juncture. Germany’s increased defence spending will alter the regional investment landscape, although corporate earnings in the UK are lagging. The timing of a European recovery remains uncertain, but a selective approach is likely to be rewarded. The lacklustre environment of the past two decades seems about to change, with the debt brake lifted in Germany and a different approach to defence spending in the European bloc.
Positioning for volatility and growth
Domestic fRate hikes are in the past and, with more than 80% of central banks in cutting cycles, fixed income risks should be contained in the short term. Still, this asset class will have more volatility than has historically been the case. Expectations for rate cuts may be too aggressive in global markets, warranting a degree of caution since the impact of tariffs has not yet appeared in inflation readings. The concentration of precious metals in the domestic equity market remains a key risk, as a shift in global policy could trigger a sharp correction in gold, especially if the consensus view of a weaker dollar does not materialise.
JPMAM has responded to rate volatility by reducing duration in fixed income portfolios and favouring a steepening yield curve. The team maintains a modest overweight to equities and credit, anticipating that central banks, particularly the US Federal Reserve, retain scope for further rate reductions as growth moderates. Within equities, US exposure is selective, while emerging markets and Japan present attractive opportunities.
Alternatives and currencies: critical levers
JPMAM believe alternative assets are vital for inflation protection, but illiquidity and varied returns remain challenges. Regulatory changes are improving access, and strategies that benefit from rising inflation, timberland, and real assets should be embraced. The STANLIB Multi-Asset team prefer liquid alternative approaches like factor investing and dividends and other increasingly relevant liquid ways of protecting against inflation volatility.
Currency management is another critical component of portfolio construction. The weakening dollar, driven by recent policy shifts, is a major consideration for global investors.. With nearly 70% of global equities benchmarked to US-listed companies, investors are likely to be more selective about their dollar exposure, focusing on currency weighting and the shifting policy landscape.
Demand more, act now
Investors should insist on active, informed decision-making and position portfolios for a world that rewards conviction, selectivity, and partnership. In asset management, as in markets, waiting for perfect conditions often means missing real opportunities.
STANLIB Asset Management (Pty) Ltd, an authorised financial services provider (FSP) under the Financial Advisory and Intermediary Services Act (FAIS), Act No. 37 of 2002 (Licence No. 719).
