2025 Market Outlook: Key Reasons to Invest in SA Now

As we look ahead to 2025, it’s essential to reflect on the remarkable year that 2024 has been in the market. Election years typically bring a bit of calm before the storm, with investors holding back as they wait to see how things play out. However, this year has been an exception, with the S&P 500 seeing its best performance during an election year since the 1930s, up 25% so far.

This outstanding performance in the market has been surprising, given the high valuations in certain sectors that initially suggested a more subdued year. Asian markets, particularly China, have been buzzing with activity, and events in Japan have also made waves. On the local front, South Africa presented a unique scenario with a Government of National Unity formation, leading to investor approval and no significant issues post-election.

Making uncomfortable investment decisions can often lead to rewarding outcomes. Investing in areas that may not be in favor requires courage but can pay off in the long run. South African assets, despite prevailing market sentiment, have shown strong performance across the board. Equities, bonds, property, banks, and retailers have all demonstrated resilience and promise.

Looking ahead, there are challenges to consider, such as global debt levels, inflation risks, and inflated asset valuations. US government debt, in particular, poses a potential threat if growth doesn’t outpace borrowing costs. Additionally, persistent inflation can impact US government financing costs in the long run.

Valuation risks and excessive speculation in the US market are also causes for concern. Retail investors and speculators are driving market activity, leading to volatile movements in obscure assets and leveraged ETFs. Private equity firms are facing reinvestment risks as they seek new opportunities with potentially lower returns.

Despite these challenges, South African equities present significant investment opportunities. Share prices are aligning with earnings, especially in the banking sector. The bond market also shows promise, with room for further yield declines. The upcoming National Budget Speech in February will be a critical indicator of the market’s direction.

While offshore opportunities are not dismissed, the focus remains on the US market. China offers potential, but risk-adjusted returns must be carefully considered. The UK, on the other hand, seems undervalued and could present opportunities as investors reevaluate their strategies.

In summary, 2024 has been a year of surprises and growth in the market. By staying informed, diversifying investments, and being patient, investors can navigate the changing landscape and position themselves for success in the coming year.