Adriaan Pask | Chief Investment Officer | PSG Wealth | mail me |
There is no shortage of reasons for investors to feel uneasy at the moment. Geopolitical tensions between the United States and the Middle East continue to make headlines. Oil prices have also spiked in parallel.
Locally, the economy remains trapped in a low-growth environment. Unemployment and the escalating cost of living also continue to weigh heavily on South African households. It is, therefore, hardly surprising that investor sentiment has turned increasingly pessimistic.
Always look at the evidence
Periods of uncertainty make it even more important to distinguish between how the economy feels and what the underlying data actually tells us.
Globally, economic growth has undoubtedly slowed. However, the available evidence still falls short of pointing towards an imminent recession. Purchasing managers’ indices continue to indicate expansion across much of the global economy, albeit unevenly. Some regions remain under pressure, while others have proved more resilient than expected.
South Africa tells a similar story. Growth remains modest, and the recovery is fragile. However, certain indicators are moving in the right direction.
For example, car sales and credit extension have begun to tick up. South Africa’s private sector returned to marginal growth in June. The S&P Global South Africa Purchasing Managers’ Index (PMI) rose to 50.5 points from 49.6 in May.
Disposable income has continued to increase, and household debt levels remain relatively contained. While this is far from a booming economy, it does suggest that activity continues to inch forward, however slowly.
Periods like this make separating emotion from evidence particularly important. The economic picture may feel uncomfortable, but investors should assess whether the available data supports that perception.
Sentiment and economic reality are not always perfectly aligned
For many South Africans, the economy is experienced through the lens of job security and day-to-day financial pressures. These experiences are entirely valid, particularly when formal employment remains under strain.
At the same time, households can feel financially stretched even as aggregate indicators point to a degree of resilience. The two are not mutually exclusive. And nowhere is this disconnect between sentiment and the data more apparent than in the labour market. Currently, employment remains one of the constraints of South Africa’s economic picture. It also goes a long way towards explaining why confidence remains subdued.
Without stronger job creation, it is difficult for improvements seen elsewhere in the economy to affect how the majority of the population experiences daily life. Inflation provides yet another example of why investors should avoid drawing conclusions too quickly. Recent movements in oil prices highlight how quickly the outlook can change.
While lower energy prices initially offered some relief, renewed geopolitical tensions placed upward pressure on prices once again. At the same time, consumer prices tend to adjust more slowly. This means inflation can remain elevated even after some input costs begin to ease.
Here again, separating emotion from evidence helps investors interpret conflicting signals. Economic indicators can show resilience while households continue to experience genuine financial pressure.
Emotionally charged investment decisions rarely bear fruit
In an environment like this, it becomes tempting to react to each new headline. Yet investment decisions made on emotion rarely produce consistent or desirable long-term outcomes.
Markets are constantly repricing future expectations. They often do so long before the broader economy begins to improve or deteriorate. In contrast, investors often respond to the latest development as though it represents a permanent change in direction. The reality is generally far more nuanced.
So, this is neither an argument for optimism nor pessimism. Rather, it is an argument for discipline. Uncertainty should never be confused with deterioration. Likewise, resilience should not be mistaken for prosperity.
The role of investors is not to ignore risks or assume conditions are better than they are. Instead, investors should separate emotion from evidence, remain focused on the underlying data, and make decisions based on long-term fundamentals rather than short-term sentiment.
Ultimately, separating emotion from evidence allows investors to acknowledge genuine risks without allowing fear or optimism to distort their judgement. It provides a more disciplined basis for navigating uncertainty and assessing long-term investment opportunities.
