SA markets have outperformed expectations in 2025, but is a correction on the horizon?

Despite the economic turbulence created by Donald Trump’s tariff wars earlier in 2025, South African markets have outpaced expectations this year.

Year-to-date, the local equity index has increased by almost 30%, while nominal bonds have seen a return of almost 14%. The Johannesburg Stock Exchange (JSE) passed the milestone 100,000 mark for the first time in July and by mid-October had reached 111,000.

However, this has forced many to question whether local markets are due for a correction.

“Local earnings growth has been maintained above 20% over the year, resulting in valuations remaining below long-term average levels even after the sharp price increase. This does not answer the short-term correction concern, but is a good indication of a favourable starting point for long-term equity returns,” says Luigi Marinus, portfolio manager at PPS Investments.

He said maintaining a cautiously optimistic asset allocation, showcased by the overweight equity exposure and sizeable cash holding across Solutions, has meant that the range remained competitive compared to peers over all periods.

“Looking forward, markets will be buoyed by the IMF upgrades to its growth forecasts, after a period of US recessionary concerns. Locally, a modest improvement to growth appears likely, which could curtail some concerns, but still points to a somewhat lukewarm outlook,” Marinus added.

He said central bank policies across the world will remain important as the US reignited its cutting cycle at the most recent US Federal Reserve meeting, with the prospect of more cuts to follow. 

Many are forecasting further interest rate cuts in South Africa, given that inflation remains fairly muted.

Marinus said asset allocation changes were unlikely during the fourth quarter of 2025 if the current economic conditions persist.

“The differential between the potential yield in cash and bonds may allow an opportunity to increase bond exposures, but this is likely to be at the margin if at all,” Marinus said.

Although local property has seen periods of strong performance recently, there is very little difference between property and equity returns over three and five years and the relative stability of equities is preferred.

On the global front, equities remain expensive and bonds remain susceptible to tariff uncertainty.

“So far, 2025 serves as a reminder that markets can perform well even when economic conditions seem uncertain,” Marinus concluded.

“This year has also reminded investors that local markets go through periods of significant outperformance of global markets and highlights the importance of a diversified portfolio.”

IOL Business