HeatMap
MPS provider investment teams are asked how they expect to change their asset allocation over the next quarter.
Global equity markets enter Q3 with cautious optimism after a strong rebound in Q2, supported by trade agreements between the US, China, and the UK. Markets anticipate further deals ahead, helping to ease some geopolitical tensions. However, global bond markets, especially US government debt, remain under pressure amid persistent concerns over the rising US deficit and political pressure on the Federal Reserve to lower interest rates.
In contrast, South African markets continue to outperform, with local bonds gaining for a fifth consecutive month, driven by political stability following Budget 3.0 and a supportive 25 basis point rate cut by the MPC. Looking ahead, equities could benefit from further easing of geopolitical risks, while bond markets may remain volatile without fiscal improvements.
We maintain our long-term strategic asset allocations, with a general preference for SA bonds over global bonds and a constructive view on long-term global equity exposure.
Global economic backdrop:
Recent trade policy developments, particularly between the US and China, have created uncertainty. While some tariffs have been removed or suspended, overall US tariff levels remain high, which could dampen global growth and increase US prices. Economic data remains resilient, partly due to pre-tariff stockpiling, but the full impact of tariffs will become clearer in the coming weeks.
Asset class performance:
Global equities were considered expensive before recent volatility, mainly due to the large US weighting in benchmarks. Valuations have not improved enough to warrant increased exposure. The outlook for global bonds is mixed: weaker growth should lower yields, but fiscal concerns may push yields higher. Cash yields are expected to continue falling.
South Africa:
The local economic outlook is weaker than at the start of the year but better than the previous decade, thanks to structural reforms in electricity, logistics, and visas. South African asset classes remain attractively valued and are expected to deliver above-average returns over the next five to 10 years. The rand is still undervalued and could appreciate against the US dollar in the medium term.
Tactical asset allocation:
The global economic outlook has deteriorated, and there is still uncertainty over US policy. Local (South African) assets are favoured due to attractive valuations and improved growth prospects from ongoing reforms.
Key takeaways:
Caution is advised on global equities due to high valuations and policy uncertainty. South African assets are seen as offering better medium- to long-term return prospects. Investors should be aware of market and currency risks, and past performance is not a guarantee of future results.
In Q3 we expect market volatility to continue so we have a preference for active managers who are able to take advantage of this to buy stocks at lower levels. Our funds and models remain style-agnostic with an equal blend of value, quality and growth.
Our preferred asset class remains equities, both locally and offshore, and we prefer cash over bonds in models and funds with a lower risk budget. In SA, we prefer rand hedges to SA Inc as we wait for improved economic news to indicate recovering growth, and are being mindful of SA government bond exposure while looking at corporate bonds for diversification. Globally, we are remaining neutral on emerging markets and underweight the US.
As we enter the third quarter of 2025, the Glacier Invest Asset Allocation team maintains a neutral stance on the South African cash allocation and has reduced its allocation to South African inflation-linked bonds to a maximum underweight position. This decision reflects the South African Reserve Bank’s intended policy change to target 3% inflation over the long term. From a short-term tactical view, we have scaled back our exposure to both global developed market equity and emerging market equity to neutral, while increasing our allocation to global cash from underweight to neutral. This adjustment is in response to weakening global leading economic indicators, which typically point to lower earnings growth. Despite this near-term caution, we remain positive on the global developed market and emerging market equity over the longer term, supported by robust earnings growth forecasts that continue to outpace inflation. The team also maintains a neutral position on South African listed property, global listed property and global nominal bonds.
Q2 brought about more clarity on Trump’s foreign policy, showing on multiple occasions his inability to hold fast to his initial proposal and ultimately using exorbitant tariff threats as a mere negotiation tactic before dropping them to more realistic levels. Efforts to profit from the initial selloff that is followed by a strong rebound are colloquially known as the TACO trade – Trump Always Chickens Out.
We believe that this trend will continue and ultimately result in more realistic tariff levels worldwide. Our outlook is that a risk-on environment will perpetuate as a result and lead to higher equity prices, with emerging market equities taking the lead. On the fixed income front, we believe South African government bonds are well-positioned to rally given that real yields in South Africa are some of the highest in the world and have sizeable room to compress.
As we enter Q3 2025, the global macro environment is increasingly being shaped by geopolitical friction and policy divergence. The Trump administration’s tariff implementation is beginning to bite, particularly in trade-exposed regions such as the Eurozone and China, while the US economy remains resilient, supported by deregulation and fiscal stimulus. This divergence is likely to delay Federal Reserve rate cuts, while the European Central Bank and the People’s Bank of China continue easing.
US mega-cap tech remains attractive on a relative basis, but volatility around US policy and the earnings season caution us against aggressive positioning. Commodities are showing signs of a cyclical rebound, but global demand risks temper enthusiasm. Offshore equity still holds the edge over local. However, volatility in rates and foreign exchange has been opportunistically used to increase local fixed income exposure. With volatility ruling the landscape, active management and selective exposures remain key, while staying close to all developments and prioritising flexibility and risk management.
Our outlook remains cautious in the short term, due to heightened market uncertainty. We expect a broadening of the market away from the prior concentration in US large-cap tech counters.
US growth looks to be slowing somewhat, but we expect markets to focus more on the US inflationary trajectory and the subsequent monetary policy response by the Federal Reserve.
Recent market dynamics have been shaped by a confluence of policy uncertainty, shifting inflation expectations and geopolitical risk. While the global economy remains structurally sound, investor sentiment has been rattled by the unpredictability of US trade and fiscal policy, with elevated tariffs and expansive stimulus plans fuelling concerns over inflation and bond market volatility. The risk of a disorderly depreciation of the US dollar, compounded by weakening safe-haven status, adds further complexity to portfolio construction. Meanwhile, geopolitical tensions – particularly the escalating risk of conflict between Israel and Iran, and the potential for US involvement – have heightened global risk aversion.
In this environment, regional diversification, income strategies and exposure to real assets are increasingly critical. Europe’s fiscal pivot and improving domestic demand offer a counterbalance to US-centric risks, while China’s muted consumer recovery underscores the fragility of global growth. In South Africa, although structural reforms and a more stable energy outlook are encouraging, the economy remains vulnerable to global shocks and domestic political uncertainty. Against this backdrop, we must prioritise resilience, diversification and strategies that can weather any number of scenarios.
In Q3 2025, the global investment landscape is shaped by slowing U.S. growth, rising geopolitical tensions, and shifting trade dynamics. Weaker private demand and elevated tariffs are weighing on U.S. consumption and investment, while policy uncertainty adds to the drag. Though the Federal Reserve is expected to cut rates in the second half, the economic impact may be modest. Meanwhile, geopolitical frictions—especially between the U.S. and China as well as in the Middle East—are intensifying, prompting Europe to pursue greater unity and trade diversification. This creates a more favourable backdrop for European assets.
Despite subdued growth, corporate earnings remain resilient, supporting a cautiously optimistic asset allocation. Equity returns may be moderate in the near term, but regional rotation—particularly toward Europe—could become a more persistent investment theme
The first half of 2025 has been relatively rewarding for investors, despite a highly volatile global landscape. While the US economy remains resilient, with some potential tailwinds from the ‘big beautiful bill’, the inflationary impact of tariffs still needs to filter through to households.
There is a significant divergence in the hard and soft economic data in the US, with little certainty about which side will correct first. Trade negotiations and further relaxation of strict reciprocal tariffs would be a welcome development. However, the effective US tariff rate will still likely end up at its highest levels since 1930. Furthermore, the various conflicts and tensions raging around the globe (Iran-Israel, Russia-Ukraine, India-Pakistan, China-Taiwan, etc) will likely continue to impact risk appetite and cloud the picture during the third quarter.
Given this landscape, we continue to hold highly diversified exposures, favouring regions and assets with favourable valuations and economic tailwinds (such as stimulus capacity). These include South Africa, China, and Europe. In South Africa, momentum remains positive, albeit fragile. A benign inflation outlook, capacity for rate cuts and a more competitive currency should support sentiment and attractively valued local assets. We therefore continue to hold healthy exposure to local equities and bonds. Where offshore exposure drifted below neutral, we trimmed some profits from the local equity positions and used the recent bouts of rand strength to move this back to neutral, allocating to short-term global fixed income and non-US equity.
We remain constructive on local growth and defensive assets. Local fixed income stands to benefit from interest rates giving real returns with benign inflation and attractive asset class valuations. Although not as attractive as a year ago, local equity is still appealing relative to other regions from a valuation perspective.
Meanwhile, looking offshore, we expect the US dollar to remain weak and the US economy to continue to struggle as it grapples with uncontrolled debt. Emerging markets are more attractive from a valuation perspective. While we are mindful of possible tariffs, it provides good diversification.
In Q2, global markets saw a modest recovery, buoyed by easing trade tensions and resilient corporate earnings. However, the core macro risks highlighted earlier this year - fiscal fragility, geopolitical friction and policy uncertainty - remain firmly in play as we head into Q3.
Trump’s tariff posturing continues to drive market volatility. The so-called ‘TACO [Trump Always Chickens Out] trade’ has supported risk assets in the short term, but the prospect of sharply higher tariffs presents clear inflation risks. The much publicised ‘one big beautiful bill’ has also raised alarm over the US fiscal outlook, with deficits expected to remain above 7% of GDP.
Bond markets are beginning to reflect these concerns, as rising yields signal investor unease. Elevated energy prices, amid heightened Middle East tensions, are adding to inflation pressures. Despite this, markets are pricing in two Fed rate cuts this year, reflecting expectations of softer growth ahead.
Locally, reform efforts offer some encouragement, but political uncertainty and structural challenges persist. We remain cautiously positioned, with diversified global exposure, favouring low duration, quality and value equities, and selective hedge fund allocations to navigate this complex environment.
Our outlook on global developed equities remains constructive. Despite heightened geopolitical tensions – particularly the ongoing Israel-Iran conflict – market fundamentals have shown resilience. Notably, Opec’s decision to increase oil supply has helped ease pressure on energy prices, providing some relief to inflation-sensitive sectors. The US economy continues to demonstrate robust performance, supported by steady consumer spending and a resilient labour market. While concerns initially mounted over Donald Trump’s renewed tariff stance, the anticipated disruption to global trade has thus far been muted. Encouragingly, several nations have begun constructive negotiations, suggesting a more pragmatic path forward. We remain attentive to evolving geopolitical risks and policy developments but continue to favour diversified exposure to quality companies in developed markets, where fundamentals and policy clarity provide a stable backdrop for long-term growth. Risk management and selectivity remain key in this environment of uncertainty and shifting global dynamics.
We have shifted to a neutral stance across all major asset classes, aligning with our strategic asset allocation framework for the start of our third quarter.
Our reduction in SA nominal bond exposure from moderately overweight to neutral reflects a reassessment of risk-adjusted returns, following a 55 basis point drop in real yields and diminished relative value compared with peers like Brazil. While local bonds still offer attractive income, rising geopolitical risks, evolving US trade dynamics, and uncertain global rate expectations prompted a more cautious view.
We remain neutral on SA equities due to valuation concentration and sector-specific risks, particularly in the resource sector, despite a sharp YTD rally. Foreign equities face stretched valuations and weakening earnings, while global bonds offer conflicting signals, higher yields countered by inflation and fiscal concerns. This neutral positioning preserves flexibility to respond to market developments and capitalise on opportunities as they arise.
We expected markets to remain jittery this year due to trade wars as many countries retaliate against US imposed tariffs. The reciprocal tariffs announcement by the US on ‘Liberation Day’ was, however, beyond our expectations. This caused a bloodbath in many asset classes.
The sell off in April somehow improved valuations for global equities. We took advantage of the sell off and increased exposure to global equities. As volatility remains heightened, we have kept some firepower in global cash and have exposure to global bonds as a hedge against more negative news headlines or a major slowdown in economic growth. In addition, yields on global fixed income are attractive at this point as many central banks have paused on their interest rate cutting cycles.
In the domestic market, we still have a lot of equities but have taken some profits to fund our increased exposure to global assets. We own less bonds in the domestic market.
Overall, we remain overweight growth assets and are overweight offshore assets.
Amid heightened geopolitical uncertainty, including recent volatility stemming from the proposed Trump tariffs and ongoing risks surrounding the formation of the government of national unity (GNU), we have adopted a more cautious positioning. In response, we reduced our overweight position to local equities and returned the portfolios to their strategic asset allocations.
This neutral stance reflects a deliberate move to manage risk in an environment marked by elevated uncertainty and market sensitivity to political developments.
Our current focus remains on diversifying alpha sources across asset classes and strategies, with an emphasis on robust portfolio construction and manager selection to support performance through a range of market conditions.
Our current investment positioning reflects a cautious yet opportunistic stance amidst ongoing global market volatility. Our portfolios remain underweight in US equities and long-duration bonds going into Q3. The equity underweight is due to valuation concerns, particularly in the technology and consumer discretionary sectors. Despite the underweight position, the US economy remains comparatively strong, justifying continued exposure.
Internationally, we have increased allocations to non-US equities over the past six to nine months, driven by more attractive valuations and a strategic shift towards emerging markets. This overweight stance is closely monitored, given rising geopolitical risks. Locally, South African resource stocks such as gold and platinum have performed well, supported by the JSE’s 65% offshore earnings exposure, offering a natural hedge. With that in mind, we remain underweight SA Inc equities, though opportunities are being evaluated as conditions evolve.
The team remains focused on actively monitoring positions in non-US and emerging market equities, particularly in light of heightened geopolitical risks that could impact valuations and capital flows. We are also looking into opportunities to increase exposure to US real estate and long-duration bonds, especially as the Federal Reserve’s policy stance evolves in response to economic data. Within the South African context, any signs of improved economic rhetoric or reform momentum could warrant a shift towards greater allocation to SA Inc equities. But our main focus in Q3 is to be vigilant with a readiness to act decisively on market surprises and geopolitical developments that may create dislocations or uncover attractive entry points.
The global macroeconomic backdrop remains fraught with uncertainty as geopolitical tension, particularly from renewed US tariff actions, clouds visibility on trade and policy. While capital markets have rebounded from oversold conditions, investor sentiment remains fragile amid elevated volatility and looming earnings downgrades.
We maintain a cautious 6-12 month outlook, with an appropriate balance between cash, short-duration bonds and equities in multi-asset portfolios. US equities appear especially vulnerable, given extended valuations, peaking earnings momentum and policy-induced stagflation risks. In contrast, the euro area and emerging market equities offer more attractive relative value, supported by favourable currency trends and less aggressive policy headwinds.
Bond markets reflect diverging rate expectations, with aggressive cuts priced into US yields. We still maintain that inflation risks remain underappreciated and that we expect a better opportunity in the near future to increase our exposure to longer-duration bonds.
Gold remains supported by central bank diversification and US dollar weakness. The dollar’s oversold status may prompt a near-term bounce, but the broader trend remains downward.
In this environment, diversification and risk-aware positioning are important. We remain diversified, alert to tactical opportunities as policy clarity and market direction evolve.
The first half of 2025 has been defined by volatility, shifting market leadership, and a noticeable tilt toward perceived safety. Geopolitical and trade tensions remained elevated, prompting investors to move into traditional safe havens such as gold and government bonds. Central banks held a cautious stance, contributing to ongoing fluctuations in bond yields. Meanwhile, equity markets rotated toward quality stocks and defensive sectors, with some notable support for European equities. Implementation (or not) of US president Trump’s policies on tariffs, taxes, deportations and deregulation, will dictate the direction of markets over the next few months. In addition, persistent tensions in regions like the Middle East highlight the unpredictability shaping today’s market environment.
Although we prefer to look through the noise and take a longer-term view, such events lead to increased uncertainties that will lead to more market volatility. The prudent approach is to remain close to our strategic asset allocation benchmarks. We have also retained our slight defensive tilt, with more local and offshore cash compared to our strategic asset allocation, as volatile markets could provide investment opportunities.
