HeatMap
MPS provider investment teams are asked how they expect to change their asset allocation over the next quarter.
Global markets remain shaped by policy uncertainty, shifting inflation dynamics and persistent geopolitical tension. Growth is proving resilient but uneven, with the US still leading while Europe slows and China’s recovery struggles for momentum. Valuations are elevated and risk appetite remains sensitive to changes in monetary direction, trade policy and security developments. In this environment, balance and flexibility are essential. Exposure to quality assets, regional diversification and strategies that combine income with real-asset resilience can help navigate volatility. For South Africa, structural reforms and stable energy supply are encouraging, but fiscal challenges and political risks mean portfolios must remain prepared fora range of outcomes.
Against this backdrop, volatility is likely to persist as markets recalibrate expectations around earnings and liquidity. For long-term investors, the message is clear: diversification across regions and asset classes and disciplined risk management remain essential to weather shifting macro currents and capture opportunities in a world defined by transition rather than extremes.
The global economic outlook remains uncertain. While activity has been resilient, weakening US employment threatens consumer spending. Elevated tariffs persist, but extreme scenarios have been avoided, cushioned by lower interest rates, a softer oil price and loose fiscal policy.
Global equities have performed well despite trading at elevated valuations due to the heavy US weighting, pointing to below-average long-term returns. Outside the US, valuations are more reasonable. Bond yields may decline with softer growth but long-term fiscal concerns will limit downside. Cash yields are expected to fall further, especially in the US.
Although South Africa’s outlook is weaker than earlier in the year, it is stronger than during the past decade, supported by reforms in electricity, logistics and the visa systems. Local asset valuations remain attractive, with potential for above-average returns over five to 10 years. The rand is modestly undervalued and may appreciate further. Key risks include global policy uncertainty, inflation volatility and fiscal instability.
Locally we expected more muted returns from cash and bonds and are being cautious with duration. While not moving meaningfully underweight bonds and cash, we do prefer equities as an asset class. Globally, equities remain our preferred asset class. We are cautious US equities and prefer a geographically diversified revenue profile. We are also considering our emerging markets exposure and may increase this. We remain style agnostic as we prefer a style blend over the long term to lower volatility and do not plan to time investment styles.
The Glacier Invest asset allocation team recently conducted its monthly asset allocation review and increased our South African equity allocation from moderately overweight to strongly overweight. This was mainly on the back of strong expected earnings growth for SA equities, leading to a very healthy return expectation over the next two years.
As a balancing item, SA-listed property was moved from neutral to moderately underweight due to property also adding equity-like risk to an investor’s overall portfolio.
On the global side, there were no changes to the tactical outlook. We remain constructive on global developed market and emerging market equity over the longer term on the back of inflation beating long-term earnings growth forecasts, although the expectation is for SA equities to outperform their global counterparts in the shorter term.
Overall, the team retains a neutral to moderately underweight position on our overall offshore exposure.
One of the highlights of Q3 was the Federal Reserve being open to easing interest rates given the lower inflation rate and a jobs market that is starting to show signs of weakness. Jerome Powell shifted gears from a rate-hiking hawk to being a more rate-decreasing dove – a change that the markets have welcomed with a ‘risk-on’ sentiment that has perpetuated for weeks.
We expect this euphoria to continue into the fourth quarter and expect to see higher highs for equities; we are particularly bullish on emerging markets and have overweighted accordingly. With the Fed expected to cut rates more regularly, this gives most emerging markets space to cut their interest rates too. As a result, we expect South African government bonds to continue their rally as real yields continue to compress.
In Q4 we expect the Fed to continue to cut rates in response to a weakening labour market, prioritising employment over tariff-driven inflation.
In Europe, improved fiscal support reduces downside risks, though growth and inflation remain subdued, limiting the region’s near-term potential. Against this backdrop, we favour US equities, supported by robust earnings growth and a weakening dollar, which enhances global competitiveness.
We continue to like local equities and bonds – valuations remain attractive for stocks, while bonds are nearing fair value as yields adjust. In contrast, Europe and Japan face currency-driven headwinds that may weigh on returns despite accommodative policy settings.
After years of relative underperformance, markets outside the US have outperformed handsomely in the year to date and look set to continue the trend. Potential slowing in US growth and stimulus support, and further weakening in the USD are driving factors.
Despite sticky inflation, the Fed’s focus will likely be on the labour market, with guidance on at least two more rate cuts for 2025. This could support equities, along with fading tariff concerns and strong expectations for productivity gains. However, risks remain from slowing earnings growth (from tariff-related costs and lower consumer demand) and relatively stretched valuation. In Europe and China, while growth looks uncertain, stimulus and relatively more attractive valuations can continue to drive performance.
Locally, performance has been very narrowly driven. Local-focused counters have been priced for very little growth, setting a low base for positive surprises. Reform progress and anchored inflation expectations could also be valuable boosts to sentiment.
We are remaining close to neutral on growth assets, albeit with a slightly more cautious tone. Given stretched index valuations and concentration, we prefer active management for both equity and fixed income in the current market, along with alternative assets.
Current economic data suggests the US economy is losing momentum, with consumption growth particularly subdued. While labour supply has been constrained by lower participation rates and reduced immigration, slowing labour demand is expected to push unemployment higher, creating room for the Federal Reserve to cut rates. The key risk for US markets remains a right tail risk in long-term yields, driven by an unsustainable debt trajectory and mounting government pressure on the Federal Reserve to ease policy.
We expect the dollar to continue to weaken, making local and emerging assets more attractive. A pickup in commodity prices has also been a tailwind to emerging markets and we have moved emerging market equity exposure up.
As US bonds have already priced in interest rate cuts from the Federal Reserve and local bond yields have also come back significantly, we are trimming allocation to local bond funds to take some profit.
As we enter Q4, markets face a more challenging backdrop. Global growth momentum has slowed, geopolitical risks remain elevated and diverging monetary policy paths are unsettling bond and currency markets. Inflation trends are uneven across regions, while elevated U.S. equity valuations leave risk assets vulnerable to correction. Against this backdrop, we remain relatively defensive, positioning portfolios to weather uncertainty while pursuing selective opportunities.
Globally, we favour value-over-growth equities, a slightly shorter duration stance, and increased allocations to alternatives given their diversification and real return benefits. Emerging markets offer selective opportunities, supported by dollar weakness and attractive valuations, even as trade and tariff risks cloud the outlook.
In South Africa, strong domestic asset performance and rand resilience provide an opportunity to realise gains and reallocate offshore. We have trimmed long-dated bond duration to lock in returns, while maintaining a balanced stance on alternatives amid persistent political and global uncertainty.
We remain broadly bullish on risky assets, with a pronounced overweight in US equities. We are watching closely for signs that the US economy is weakening; rising jobless claims, slowing retail sales or deteriorating consumer confidence could prompt us to dial back US exposure.
Inflation and tariff pressures remain key risk factors shining a light on the Fed’s stance on interest rates. However, US megacap stocks are still proving resilient, with earnings continuing to beat expectations.
Emerging markets have delivered solid performance in 2025 so far, driven by attractive valuations, earnings momentum and a weaker US dollar. Central banks in many EM countries are now in or entering easing cycles, aided by disinflation trends and stimulus measures.
In Q4, we’ll be watching US economic indicators for signs of fatigue, and yield-enhancing opportunities in emerging markets.
Given the backdrop, we favour keeping diversified exposure, with selective overweight in quality US names, ready to shift if macro data turns more adverse.
Domestic assets have performed well this year, supported by, among other things, higher commodity prices and a stronger rand that has kept inflation low. While the rally in local assets may continue, given the magnitude of the outperformance relative to global assets, our managers took profits from domestic equities and bonds in Q2 and used the proceeds to increase offshore exposure. The rally in the local currency also gave them good entry points to global assets.
The offshore overweights are in equities and fixed income. The uncertainty brought by trade wars and geopolitics has increased opportunities for stock pickers, and our managers are taking full advantage of this. In fixed income, the US Fed is expected to continue cutting interest rates in its October and December meetings, and our managers are locking in the higher rates that are currently on offer.
We continue to favour local equities, where valuations remain supportive despite South Africa’s political strain and sub-1% growth outlook. While the Government of National Unity (GNU) has struggled to deliver reform, selective opportunities persist, particularly in sectors with resilient earnings.
Globally, we expect US dollar weakness to continue, which supports emerging market equities over the medium term. That said, risks to global growth are rising with tariffs and policy uncertainty weighing on sentiment, while sticky inflation keeps monetary easing uneven across regions.
Europe’s more accommodative stance contrasts with US constraints, where slowing growth and fiscal fragility limit policy flexibility. Against this backdrop, we see opportunities in diversified equity exposure, with a tilt toward emerging markets, while maintaining a cautious view on developed markets until growth and policy signals become clearer.
As we enter the final quarter of 2025, the investment team remains cautiously optimistic yet firmly anchored in a defensive stance.
Global equity markets are buoyed by persistent US exceptionalism, strong corporate earnings and resilient consumer demand, but narrow market breadth and elevated valuations raise concerns.
A weakening US dollar is emerging as a structural trend, supporting commodities and offering tailwinds for emerging markets, particularly China and resource-linked economies. At the same time, volatility from tariffs, geopolitical flashpoints and shifting central bank policies underscores the need for agility.
Within South Africa, political uncertainty persists but resource stocks and global-exposed companies continue to underpin local equity performance.
The team favours a barbell strategy: maintaining exposure to global growth drivers like AI and technology, while balancing with commodities, gold and selective EM value. Elevated cash levels and short-dated bonds provide flexibility to capture opportunities as market pullbacks or policy shifts unfold.
Risk assets continue to benefit from a favourable macro backdrop, supported by resilient global growth, a dovish Fed bias and ongoing corporate earnings strength. US economic momentum has moderated but there seems to be no imminent recession trigger.
However, a lot of good news has been priced into markets and valuations are stretched, especially in the US. With US equities trading at elevated forward price/earnings multiples, credit spreads remaining tight, and markets pricing in significant Fed easing, caution is warranted. Additional stimulus, particularly the aggressive rate cuts sought by President Trump, risks reigniting inflation pressures just as tariffs start filtering through to consumer prices.
While 10-year yields suggest bond market complacency, 30-year rates hovering near multi-decade highs signal a looming shift in sentiment and may weigh on risk assets in the medium term.
In this context, we remain diversified, with allocations to risk assets close to the strategic benchmarks of the portfolios, neutral to local bonds, but underweight global bonds and overweight shorter-dated offshore bonds and cash.
Global markets have remained volatile this year, driven by shifting interest rate expectations, geopolitical tensions and trade policy uncertainty. Proposed policy changes by US President Donald Trump, including tariffs, tax reforms, deportations and deregulation, kept market participants guessing, as the extent and pace of implementation will be critical in shaping global market dynamics over the coming months.
Locally, improved investor sentiment, moderating inflation and early signs of progress on structural reforms have supported asset class performance. In the year to date, South African equities have been among the best-performing asset classes, outperforming developed markets and other emerging markets. Local bonds and listed property are also on track to deliver double-digit returns.
Growing client wealth at consistent rates above inflation requires both yield and growth – outcomes that are best achieved through diversified exposure across a broad range of risk and income assets.
Diversification remains a fundamental pillar of our investment philosophy, enabling us to balance opportunity with resilience across market cycles.
While we aim to look past short-term noise and remain focused on long-term outcomes, the current environment of heightened uncertainty inevitably brings increased volatility. The prudent approach is to stay close to our strategic asset allocation benchmarks while maintaining a slight defensive tilt.
Holding elevated levels of local and offshore cash reflects this cautious positioning but also provides the flexibility to take advantage of opportunities as they arise in volatile markets.
