What a year this has been. Thanks to gold, the South African Top 40 index is up a whopping 36% and even the U.S. tech index is up 22% in dollars. Equities started the year on a strong note but then had a partial collapse in April when Donald Trump introduced his plan to charge import tariffs on all countries. These tariffs were largely rolled back during the year and equity prices recovered. After two exceptionally good years for U.S. equities, especially the big tech companies driven by AI, one would have expected 2025 to be more muted, but it wasn’t. The biggest surprise to all must have been the rise in the price of gold (after some years of mediocre performance), causing our Resources companies to deliver super profits and a 122% return for the year. The cherry on the cake was the performance of the rand. Currently it is around 10% stronger against the dollar, 4.5% stronger against the pound and unfortunately 1.5% weaker against the euro. So what do we expect 2026 to deliver?
Can we get another good year out of the South African market? A lot will depend on the political will. Currently things are looking up with the rating agencies giving us the benefit of the doubt and upping our credit rating, getting off the financial grey list and the inflation target lowered to 3%. We already saw the benefits in the performance of the rand and our bond yields dropping from around 11% at its peak to around 8% currently. It must be said that unless the gold price spikes up again, the Resources companies will not repeat this year’s performance, but with interest rates coming down, the underperforming retailers might get a good bump.
In the case of Europe and China, both markets performed well, with Europe up 17% and Hong Kong up 27%. Unfortunately Europe is still very restrictive when it comes to business and innovation and we all know that there is a lingering tension between the U.S. and China which can de-rail any performance in the Chinese market. This forces you to be stock-specific and be prepared to trade your positions on a shorter-term basis. The fund managers we are using have their jobs cut out for them when investing in these markets.
The U.S. market seems to be the easiest to predict currently. It is highly unlikely that the big tech companies (Mag7) can produce another stellar year given their current valuations. Everything has a price and it is highly likely that investors will want to see if the billions of dollars these companies are spending on building out their AI capabilities, can generate the expected returns. This is not to say that they will go down in value, but rather that they will just muddle along. It must be noted that there is more than $7 trillion in money market funds in the USA currently and if there is a fall of, say, 10% in the Mag7 companies, some of the money market funds will flow into the Mag7, which will support their price. It is also worth noting that these technology companies might be priced for perfection with the current information available, but they have the best brains money can buy, working on new and life-changing innovations 24/7.
If we just take Google as an example, they have an autonomous driving division called Waymo, that has driven over 100 million fully autonomous miles on public roads. Waymo currently makes up less than 1% of Alphabet’s (Google’s) share price. So if they decide to list it separately, a lot of value can be unlocked. Another overlooked fact is the 7.4% shareholding of Google in SpaceX, which could list as a $1 trillion company soon. Currently that is not in the Google price. There is a lot of talk about the state of the U.S. consumer. A lot of people think that they are struggling and that they will slow down their spending which will impact negatively on the broader share market in the USA. If you listen to consumer-driven companies like the airlines, cruise ships and travel businesses, they are recording record-breaking sales. So perhaps the lower-end consumer is spending less but the middle- and high-end consumers are picking up the slack. We will have to see what the impact of lower interest and mortgage rates will be on the consumer next year.
The only asset class that is down this year is Bitcoin. It is still by far the best performing asset class over the last 15 years, but for 2025 it is negative 2.5%. What to do? It is interesting to note that Bitcoin is gaining increasing adoption in the investment world. There are over 190 public companies in the USA that are adopting Bitcoin treasury models against which various financial products are launched. Bitcoin is a binary investment, either you believe in it or you don’t. There is no way to value Bitcoin and it gives you no yield. It is said that there are large companies which are manipulating the price of Bitcoin and if you are on the right side of that trade, you make money. As we have mentioned before, we believe that although Bitcoin is not going to go away, it should not be part of your core investment portfolio, but rather see it as a highly speculative asset where you can get an outsized return on a small position.
With all of this said, we can only conclude that 2025 has been a pleasant surprise. We have seen good returns for the last three years and we are grateful for that. There is nothing concrete at the moment that makes us negative about the potential for another good year in 2026, except the fact that we have to lower our expectations. As we have proposed at the end of 2024, make sure you top up your cash and shorter-term baskets and let the longer-term investments run free. As the following graph shows, big financial institutions have very different predictions for the U.S. market.
And to end off this year, just the following quote from a great investor:”Nobody buys a farm based on whether they think it’s going to rain next year. They buy because they think it’s a good investment over 10 or 20 years. It’s the same with stocks. Think of stocks as a part ownership of a business. It’s not that complicated.” – Warren Buffett