Market Commentary

Overview

• The bulls are in control, with the rally in global tech companies leading. 
• Positive returns across most major asset classes. 
• Emerging markets outperformed developed markets, with Chinese tech leading the charge. 
• South Africa – market sentiment remains bullish. Gold shares stole the show.

Global markets

With indexes at record highs, a pervasive sense of complacency is sparking caution among some investors who suggest that global equity markets appear disconnected from the underlying economic challenges and have raced ahead of fundamentals. US markets continued to rise though stagflation is considered a significant risk. Europe's major indices are riding the wave, yet growth indicators remain tepid. China’s manufacturing rebound is uneven, and fresh US tariffs introduced in August are only beginning to filter through to Asian exporters.

These cross-currents are also evident in currency markets. The US dollar’s path is pivotal to global markets. The US dollar has been the world’s principal reserve currency and is the most widely used for international trade. A sudden strengthening would tighten financial conditions worldwide and squeeze emerging markets that have benefitted from easier funding this year. The DXY Dollar Index, which tracks the strength of the dollar against a basket of major currencies, extended declines, losing 10% year-to-date. The US dollar has softened on rate-cut bets, but any hawkish shift from the US Fed – or another round of tariff escalations – could send it higher and unsettle risk assets across global markets.

Q3 returns($)

• MSCI AC World:8%
• S&P 500:8%
• NASDAQ Composite: 11%

The MSCI AC World Index ($) gained a solid 8% in Q3 (up 17% year to date). Whereas the MSCI Emerging Market Index was up 11% in dollar terms and up 28% YTD – led by Chinese tech shares.

Bond markets were volatile throughout the quarter as global political uncertainty and concerns around fiscal sustainability came into focus. Nonetheless, the Bloomberg Global Aggregate Bond Index ended the quarter up 0.6%, as US Treasuries rallied and credit spreads tightened.

The US economy has proved resilient. The final estimate of second-quarter GDP growth came in stronger than expected, at 3.8%, versus a prior estimate of 3.3%. A record downward revision to annual US employment growth, paired with no surprises in the latest inflation data, sealed the deal for the Federal Reserve (Fed) to cut interest rates by another 25bps for the first time this year.

The S&P 500 Index has pushed to fresh highs fuelled by investor optimism for rate cuts, solid corporate earnings and ongoing AI euphoria, up another 8% in Q3. The Nasdaq Composite gained 11% and the rally has broadened to beaten-down shares poised to benefit from lower borrowing costs. The Russell 2000 Index, which tracks smaller US companies, recently closed at its first all-time high since 2021, up 12% in Q3.

In Europe, the European Union and the US finalised a trade framework in July, establishing a 15% tariff ceiling on most EU goods, a rate less severe than initially feared but still higher than hoped. The US and EU economies account for almost a third of global trade. The ECB kept interest rates unchanged in August at 2.15%. In the UK inflation surprised on the upside in July, and although the Bank of England cut its policy rate by 25bps, the accompanying hawkish tone reduced market expectations for further easing. A weakening labour market and fragile consumer confidence weighed on sentiment.

In the far east, China's economy grew 5.2% in Q2 despite US tariffs. Q2 was boosted by government stimulus and a temporary pause in the US-China trade war, which allowed exporters rush out shipments ahead of new tariffs. China continued to drive emerging market sentiment. The Hang Seng Tech Index climbed 22% in Q3 (46% YTD). The index has been on a strong upward trajectory, driven by grassroots AI advancements that gained global attention following surprising breakthroughs by startup DeepSeek.

Lastly, in Japan, a US /Japan trade deal, which lowered US tariffs on almost all Japanese exports from 25.0% to 15.0% – combined with resilient domestic macro data, and ongoing corporate governance reforms – contributed to the outperformance of Japanese equities. The Nikkei 225 Index jumped 12% in Q3.

South Africa

The South African Reserve Bank (SARB) kept borrowing costs unchanged at its last meeting in September after a 25bp cut in July, maintaining the benchmark interest rate at 7%. The SARB appeared concerned that the recent improvement in inflation dynamics has not yet translated into better anchored expectations.

Q3 returns ($)

• All Share Index: 12.8%
• All Bond Index: 6.9%
• All Property Index: 5.5%
• Money Market: 1.8%

The US government notified Pretoria that Washington had introduced a hefty 30% tariff on South African imports. However, minerals considered critical to the US – notably platinum group metals (PGMs), gold, chrome and coal – will attract 0% tariffs. That accounts for about half of what SA exports to the US, so excluding these commodities is a major relief.

The market hit a new record in Q3. The JSE All Share Index gained 12.8%, led by the resources sector, which was up a staggering 47%, with the big investment story this year being the surge in precious metals. Domestically focused companies – the so-called SA Inc stocks i.e. banks and retailers – remain under pressure. Retailers had a very good 2024 and benefitted from lower interest rates, lower inflation and the two-pot money.

Year to date, the JSE All Share Index gained 28.9%. It is, however, important to mention that similar to the S&P 500 Index, the local rally is fuelled by a narrow group of shares.

Gold has soared 47% this year. The story for gold remains – central bankers are buying and there is geopolitical uncertainty. For centuries, gold has been the go-to haven asset in times of political and economic uncertainty. Its status as a reliably high-value commodity that can be transported easily and sold anywhere, offers a sense of safety when everything else is in turmoil. Investors have sought refuge in gold amid President Trump’s expanding trade war, record US debt levels, and growing infringement on the independence of the Federal Reserve.

Investors have also piled into gold-backed exchange-traded funds, with total holdings in mid-September reaching their highest point since 2022, according to data collected by Bloomberg. Also, historically gold has been negatively correlated with the US dollar. Because gold is priced in dollars, when the greenback weakens, gold becomes cheaper for holders of other currencies. The dollar reached a three-year low against other major currencies in July and remained subdued until quarter end.

The All Bond Index gained 6.9% in Q3 and 14% YTD. The bond rally has been supported by inflation that eased to a five-year low and geopolitical noise seems to have quietened down for now. Yields on SA benchmark bonds extended declines in Q3 with the 10-year yield on the Government bond ending the quarter 80 bps lower at 9.1%. Money market assets gained 1.8% in Q3 and 5.7% for the year-to-date.

Annualised returns (%) – period ended September 2025