Janca Steenkamp, Investment Strategist at Nedbank Private Wealth Investment Research and Fund Management

INTERNATIONAL OVERVIEW

Maintaining Altitude

Global equities ended the year near record highs, supported by broader participation beyond US tech and stronger December gains in developed markets ex-Japan. In the US, the tech heavy Nasdaq fell 0.7% on concerns over concentrated AI trades, while the S&P 500 was flat for December but rose 17.9% for the year, its third consecutive year of double-digit growth, driven by trade deals, strong earnings, AI optimism, and US rate cuts.

In credit markets, S&P Ratings reported defaults eased to nine in November from 10 in October. Four were due to missed payments, with most concentrated in Europe’s chemicals and environmental services sectors, where firms faced earnings pressure and high leverage amid subdued demand, economic uncertainty, and cost disadvantages in commodity chemicals.

The delayed US Q3 GDP data showed the economy grew 4.3% year-on-year, marking the strongest growth in two years. Growth was driven by strong consumer spending and an upswing in exports and government outlays. However, US job gains slowed sharply, with nonfarm payrolls falling by 105,000 in October, the largest decline since 2020 before rising by 64,000 in November. The US unemployment rate climbed to 4.6%, signalling further softening in the labour market.

Business activity improved in the UK after the November budget, with the S&P Global UK Manufacturing PMI rising to 50.6 in December from 50.2, a 15-month high. In contrast, Eurozone activity softened but remained in expansion, as the composite PMI eased to 51.9 from 52.8, led by services sectors.

In the US, headline inflation rose to 2.7% year-on-year in November, slightly down from 3.0% in September (October inflation not reported due to the six week government shutdown). Core CPI, which excludes food and energy, rose 2.6% year-on-year. The Fed’s preferred inflation gauge, core PCE (which excludes food and energy), eased to 2.8% year-on-year in September from 2.9%. Europe’s inflation climbed to 2.2%, driven by services, while China’s headline inflation rebounded to 0.7% in November from 0.2% in October. The uptick came from a rebound in food prices.

Central bank policy saw diverging actions. The US Federal Reserve cut interest rates by 25 basis points to a range of 3.50–3.75%, its lowest levels since 2022, in a split decision. In Europe, the ECB held rates steady at 2.15% for a fourth consecutive meeting, while the BOE cut rates by 25 basis points to 3.75%. The Bank of Japan increased its interest rate by 25 basis points to 0.75%, the highest level in three decades due to accelerating inflation. China kept its interest rates unchanged for the seventh consecutive month, signalling caution despite weak growth and property stress.

Emerging markets outperformed developed peers, with the MSCI Emerging Market Index up 4.8% for the quarter. Korea and Chile led gains, rising 27.4% and 25.4%, respectively, on AI enthusiasm and commodity strength. Among developed markets, the UK’s FTSE 100 was the top performer, boosted by soaring commodity prices, strong bank earnings, defence sector gains, and a weaker pound.

The Dollar Index strengthened marginally by 0.6% against major currency pairs despite the longest US government shutdown in Q4 2025. In Japan, the 10-year government bond yields rose to their highest levels since 1999 to 2.07%, as markets priced in Bank of Japan tightening and fiscal stimulus.

Brent crude fell 9.2% for the quarter to close at $60.9 per barrel, driven by concerns over weakening demand and oversupply. Gold and silver reached record highs on geopolitical tensions, a US blockade on Venezuelan oil and speculation on US interest rate cuts. Copper also reached record highs on supply fears. In PGM’s, platinum jumped 38% after the EU scrapped plans for a full ban on new internal combustion engine vehicle sales by 2035.

DOMESTIC OVERVIEW

Breaking New Ground

South Africa issued its first infrastructure and development finance bond in December, marking a strategic shift toward diversified and sustainable funding. The R11.8 billion issuance was oversubscribed 2.2 times, signalling strong investor confidence. Proceeds will support projects under the Government’s Budget Facility for Infrastructure, aimed at accelerating nationally prioritized developments.

Moody’s reaffirmed South Africa’s credit rating and stable outlook, citing structural constraints and low growth potential. Meanwhile, business confidence surged to a 14-year high, rising to 132.2 in November from 123.8 in October, driven largely by a sharp increase in overseas tourist arrivals.

New vehicle sales rose 19.2% year-on-year to 48,983 units, surpassing pre-pandemic levels. This rebound was supported by cumulative interest rate cuts of 150 basis points since September 2024, record-low vehicle inflation, and an influx of affordable Chinese models. In contrast, the Absa PMI fell for the third consecutive month to 40.5 in December from 42.0 in November, remaining firm in contractionary territory. This highlights ongoing fragility in the manufacturing sector amid weak domestic demand, subdued exports, and sluggish output, despite easing cost pressures and early improvements in logistics.

Inflation expectations declined significantly in Q4 2025, following the decision to lower the inflation target to 3% in November. Across surveyed groups, expectations for 2026 and beyond fell below 4%, with headline inflation projected at 3.8% for 2026 and 3.7% thereafter, still above the new target.

Annual producer inflation remained unchanged at 2.9% in November, driven mainly by food, beverages, tobacco products, and furniture and other manufacturing. Within food products, meat prices surged 18% year-on-year, while sugar recorded an 11.6% annual decline.

Headline inflation for the year ending November 2025 eased to 3.5%, down from 3.6% in October, moving closer to the SARB’s 3% target. Housing, utilities, and food remained key contributors. Food inflation rose for the first time in four months, climbing to 4.4% from 3.9%, led by meat prices averaging 12.2% higher year-on-year. Core inflation, which excludes volatile food and energy prices, edged up slightly to 3.2% year-on-year.

The rand strengthened to a three-year high, closing at R16.57 per dollar in December. For the year, it appreciated by 12.2% against a weak dollar. It also strengthened against other major currencies, gaining 4.0% against the dollar, 3.8% against the pound, and 4.0% against the euro during the quarter.

Bonds outperformed equities in the final quarter of 2025, returning 9.0% versus 8.1%. The 10-year bond yield continued to decline, ending the quarter at 8.36%, its lowest level in a decade. Equity performance was led by the industrial transport sector, which surged 24.7%, driven by Supergroup’s improved sentiment and operational performance. In contrast, the alternative energy sector fell 16.2%, weighed down by Montauk’s weak results and revenue decline. In M&A, Mr Price announced its largest deal to date, acquiring German-based NKD, a value-focused apparel and homeware retailer in Central and Eastern Europe. The transaction will be funded through a mix of cash and debt, marking a departure from its historically debt-free balance sheet.

ENDS