With inflationary pressures moderating and economic challenges persisting, monetary authorities will prioritise gradual rate cuts in 2025. This deliberate pace reflects a balance between stimulating economic growth and avoiding financial instability.
For example, the Federal Reserve and the European Central Bank may follow similar trajectories. This ensures financial markets remain stable while supporting growth. Emerging markets could also adopt a more measured approach. They would leverage lower rates to foster domestic investment without risking currency depreciation.
Historical precedents, such as the response to the 2008 financial crisis, highlight the importance of cautious monetary easing in sustaining long-term recovery.
Amid gradual monetary easing volatility abounds
As inflation retreats, bonds are positioned to deliver attractive real yields. Investors seeking stability and protection against potential equity market volatility will likely gravitate toward bonds.
This trend gains further support from the increasing likelihood of central banks maintaining accommodative policies. As a result, demand for fixed-income securities remains robust. Notably, institutional investors will play a pivotal role in bolstering demand this year. This is due to the current alignment of macroeconomic trends with bond market dynamics.
The property market’s recovery is set to gain momentum. This rebound is underpinned by declining interest rates and greater access to credit. Renewed consumer confidence, coupled with investor optimism, will likely drive activity in both residential and commercial real estate sectors.
Key growth areas include affordable housing projects in urban centres. They also include commercial properties tailored to evolving work and lifestyle preferences, such as co-working spaces and mixed-use developments. Data from leading real estate analytics firms show that emerging markets may outperform in property returns. This trend is driven by urbanisation and infrastructure investments.
Volatility and opportunity in global equities
Global equity markets, particularly in emerging economies, are forecast to outpace US equities. Several factors contribute to this outlook. These include stronger GDP growth, favourable currency movements and more attractive valuations.
Regions like Asia and Latin America stand to benefit from robust demand for technology, green energy, and infrastructure investments. In Asia, countries such as India and South Korea are positioning themselves as leaders in technology and innovation. They are making substantial investments in artificial intelligence, robotics and renewable energy. These nations also benefit from a shift in global supply chains. As businesses diversify away from China, they further boost growth prospects.
Latin America, on the other hand, is seeing increasing demand for commodities and infrastructure development. This trend is particularly visible in markets like Brazil and Mexico. These countries also benefit from higher global interest in green energy. They have abundant natural resources for clean energy production.
Dollar weakness fuels global rebalancing
By contrast, US equities may face headwinds. These stem from high valuations and slower economic growth. For instance, the MSCI Emerging Markets Index has shown stronger resilience compared to US-centric indices during similar economic cycles in the past.
A weakening US dollar is anticipated. This shift will occur as global risk sentiment improves and interest rate differentials narrow. A softer dollar could benefit US exporters and bolster the appeal of international equities and commodities.
Diversification into foreign assets may offer investors opportunities. They could capitalise on currency-driven gains. Historical patterns suggest that prolonged periods of dollar weakness have often coincided with stronger commodity prices. This further enhances the investment case for sectors like energy and mining.
South Africa is expected to sustain its recent momentum. It will do so by overcoming structural challenges and making notable progress across multiple sectors. Key developments include improvements in governance, financial regulation and tax policy.
South Africa – stability amid structural shifts
In December 2024, Moody’s affirmed South Africa’s long-term foreign and local currency debt ratings at ‘Ba2’ and maintained a stable outlook. This decision reflects SA’s credit strengths. It underscores the importance of continued structural reforms to address challenges. These include constraints on economic growth and a relatively high and costly debt.
In line with these positive reforms, the country’s bond market continues to perform strongly. The FTSE/JSE All Bond Index (ALBI) currently yields 10.80%. This yield suggests the potential for stable income. It shields investors from another volatile year and enhances South Africa’s attractiveness to foreign investors.
Improved ratings would likely lead to lower bond yields. This would make South Africa’s bonds even more attractive and reduce the government’s borrowing costs.
Efforts to exit grey-listing are likely to succeed. South Africa’s commitment to enhancing financial regulations and aligning with international standards positions it to exit the grey list ahead of schedule. This milestone would reduce barriers to foreign investment and improve market confidence. Comparisons to other nations that have successfully exited grey-listing suggest a significant boost to both foreign direct investment (FDI) and portfolio inflows.
Reform-driven confidence despite persistent volatility
Robust reforms are addressing contentious tax policies. These changes are likely to create a more predictable environment for businesses and individuals. This will foster economic stability. It aligns with global trends where tax has been a critical driver of cross-border investments.
As investor sentiment strengthens with positive structural reforms, bond yields like those seen in the ALBI indicate that South Africa is heading toward a more stable and profitable investment environment. The country’s ability to maintain solid bond market performance, despite domestic and global volatility, provides confidence. It shows that fiscal reforms and policy adjustments are creating a more conducive environment for long-term economic growth.
The combined effect of improved governance, regulatory reforms and enhanced credit ratings will likely make South Africa an even more attractive investment destination. This will reinforce the country’s economic stability and growth prospects.
US growth slows in a high-rate environment
US growth is expected to slow. This slowdown reflects the lasting impact of earlier interest rate hikes and tighter credit conditions. However, a recession could be avoided. With higher borrowing costs and reduced fiscal stimulus, consumer spending will likely soften. This spending is a major driver of economic growth. Household budgets will feel the strain. This could particularly affect sectors reliant on discretionary spending.
Continued investments in clean energy will drive expansion. These investments are supported by government policies and private sector growth. The Federal Reserve’s monetary policy will play a critical role in shaping market dynamics.
If the Fed manages inflation effectively and keeps rates stable or slightly lower, it could create a more favourable environment for risk assets. This would support growth in the S\&P 500. However, volatility may still arise. It could result from inflationary pressures or geopolitical uncertainties. The market may experience occasional corrections. Nevertheless, long-term growth could remain robust, especially for industries focused on innovation and sustainability.
Volatility abounds – China’s mixed outlook
China’s economy presents mixed prospects for the remainder of 2025. Sectors such as technology, green energy, and manufacturing are poised for robust growth. This growth is supported by strong government incentives and a global shift toward sustainability.
The government’s focus on innovation, coupled with international demand for clean energy solutions, positions China as a key player. Key industries include electric vehicles, solar power and AI development. However, the economy also faces persistent challenges. These challenges include struggles in the real estate market due to oversupply, high debt levels and declining property values.
Combined with an ageing population and a shrinking workforce, these issues could place substantial pressure on economic growth. China’s demographic constraints include a low birth rate and an ageing society. These factors could lead to a labour shortage. This would further exacerbate long-term economic stagnation.
Geopolitical tensions, particularly with the US and other Western nations, could also dampen investor confidence. This would affect trade dynamics and foreign direct investment.
Comparisons to Japan’s “lost decade” serve as a cautionary reminder. They highlight the risks of prolonged economic stagnation. This underlines the importance of addressing structural inefficiencies. These include the overreliance on state-owned enterprises and an underdeveloped consumer-driven economy. If these challenges aren’t managed effectively, China could face a period of slower growth and increased economic instability.
Cautious optimism in Europe as volatility persists
Europe’s economic recovery is expected to progress at a cautious pace. This recovery is supported by improvements in energy security and targeted fiscal support.
The region increasingly focuses on renewable energy sources. This reduces dependency on imports and mitigates energy price volatility. This shift toward cleaner energy, along with initiatives like the EU Green Deal, is set to drive long-term growth. Particularly, it will benefit sustainability-focused sectors such as clean tech, energy infrastructure and green manufacturing. However, Europe’s recovery faces several challenges.
These include high debt levels across member states and ongoing geopolitical uncertainties. Key issues include the war in Ukraine and tensions with Russia. These factors may limit the region’s economic potential and slow recovery. Additionally, Europe’s ageing population and rigid labour markets could further constrain growth. Nevertheless, the EU’s Green Deal and other sustainability investments are expected to act as a crucial counterbalance. They will foster new industries and job creation. They will also help the region achieve its climate goals.
Adriaan Pask | Chief Investment Officer | PSG Wealth | mail me |
