Markets in dissonance: What 2025 taught us

 Jeremy: As we reach the end of 2025, a year defined by contradictions, I’m reminded that the world of investing rarely moves in straight lines.

Global markets have rallied strongly in parts, yet the mood has often felt uneasy. Inflation cooled… but not evenly. Interest rates fell… but cautiously. Geopolitical tensions flared, supply chains were strained, and several major economies tiptoed along the edge of recession while others surprised with resilience. 

And closer to home here in South Africa, we’ve confronted familiar structural problems - sluggish growth, infrastructure constraints, and an unpredictable currency, even as pockets of resilience have emerged.

I’m Jeremy Maggs, and this is the year-end episode of No Ordinary Wednesday, Investec’s fortnightly podcast where we unpack the forces shaping the global economy and financial markets. 

For investors, this has been a year of traversing fog: moments of clarity followed by sudden volatility, optimism punctured by risk, and opportunities clouded by noise.

Through it all, one question keeps coming up: How do you invest with confidence when the world feels chaotic? 

To help answer that, I’m joined by someone uniquely placed to decode it all: Chris Holdsworth, the Chief Investment Strategist at Investec Wealth & Investment International. Chris is also a key member of the Global Investment Strategy Group, or GISG, the team that sets Investec’s global risk stance and advises on how to position portfolios across regions and asset classes.

Today we dig into the GISG’s latest quarterly Global Investment View, what it tells us about markets, and what investors are considering as we head into 2026. 

Chris, welcome and thank you for joining us for the year’s final edition.

Jeremy: So, Chris, a very warm welcome and thank you for joining us for the year’s final edition of No Ordinary Wednesday. Before we dive into the investment outlook, for listeners who may not know, maybe a good starting point is with the basics. What is the Global Investment Strategy Group and tell us what role it plays in shaping how Investec manages client portfolios. 

Chris: Hi, Jeremy. As a starting point, our Global Investment Strategy Group, or GISG as we call it, is a committee populated by nine investment professionals across our UK, Switzerland, Indian and South African offices. This committee meets on a quarterly basis and the primary responsibility of this grouping of individuals is to come up with a risk score ranging from -3 to +3. -3 would indicate they'd be very bearish, and +3 would indicate that we are very bullish. So, we take into consideration the global macroeconomic backdrop, we take into consideration valuation, we come up with a risk score and that risk score is applied throughout our business. At the moment, it's - 0.5, indicating that we are mildly risk-off and as a result our global multi-asset portfolios would all be slightly defensively positioned in the current environment.

Jeremy: So, investment philosophies, Chris, are often tested when the markets become, and I'll choose my word here carefully, let's call it noisy - like we've seen this year. Maybe then what are the core principles that anchor the philosophy of this group and maybe which of those principles have proved most value during the course of what has been a very interesting year?

Chris: That committee looks at a variety of things, but the underlying principle is to gauge whether risk is appropriately priced in or not. So, we look at the global economy, we look at where we are in the cycle, and then we contrast that with valuation. Now that's worked quite well this year. It doesn't always work. And sometimes you can land up with a market that's very stretched, becoming even more stretched. But what we have started to see in the market is some form of reversion to more normal multiples. And as a result in the US, even though the economy has been strong and earnings growth has been strong and much better than expected, the US stock market has underperformed the rest of the world. It's underperformed Europe, it's underperformed Japan, it's underperformed South Africa, and I think a large part of that is starting multiples. It's very difficult to outperform when you're very expensive. And what we've seen over the last year is closer to a normalisation. It's not complete normalistion, but closer to a normalisation of valuation. And I would suggest that's been the most important call, the most important driver, of returns over the past year.

Jeremy: So maybe if we were to summarise 2025 - a year of dissonance might be an apt descriptor. Asset prices behaving as if the world is stabilising, but underlying data suggesting the opposite. From your perspective, then, tell us what you think defined global markets this year, and are there specific or were there specific developments that shaped your thinking? 

Chris: I think there's three. I think the defining characteristic of the past year was uncertainty. We had uncertainty with regards to trade policy in the US. We had uncertainty with regards to fiscal policy, but even so despite all of that, the global economy just trundled along. And I think the underlying lesson from that aspect is that there is some form of resilience, which I think has been broadly underappreciated in the global economy. And maybe that's because US households are less geared than they were before. There could be a variety of reasons for it, but the global economy has just continued to print the GDP growth rates of about 3% despite all of this uncertainty. The second point I would raise is the rally we've seen in commodity prices, and that typically tells us that the global economy is doing well, and I think it was a rally which wasn't largely expected. If you look at what copper's done over the last year, look at what iron ore has done over the last year - they've both been very strong, suggesting again that the global economy has been in pretty good shape. And then the third point I would raise is the weaker dollar. And that ties in with stronger commodity prices. And again, it's been a weak dollar despite the fact that the US economy has been pretty good, strong and again, it comes back to the starting point of valuation. The dollar was very expensive. We've seen a normalisation in part of the year, and that's been very helpful for emerging markets, been very helpful for commodities. So, I would suggest those have been the three defining characteristics over the past 12 months.

Jeremy: Yet your global risk score still signals caution. Why would you be holding back at a time when the markets, at least on the surface, appear to have a degree of optimism? 

Chris: I think it's because of the optimism we're seeing in the market. We've got a US stock market, which is trading on a forward multiple of 23 times, which is close to the highest we've seen in the last 30 years. And we still do have some questions around the outlook for the global economy and the US economy in particular, around inflation. And if inflation proves to be sticky in the US at a 3% or maybe even above that, will the Fed be in the position to cut by as much as the market expects? And if they don't cut by three times by September next year, which is what the market expects, what will that mean for US equities and US equities are 70% of the developed market index. So just given the combination of potentially sticky inflation and stretch devaluation, we're mildly risk off if we're not a -3 but we are at -0.5 and we do think some caution is justified in the current environment. 

Jeremy: So, against that backdrop, then, what does the group expect for the economy next year in terms of growth, inflation, and the trajectory of interest rates? 

Chris: As a starting point, the consensus forecast is that the global economy will grow by about 3% over the coming year, the US at about 2%, and we see downside risk to both of those. We see some upside risk to inflation. There's a range of leading indicators, not least of which is gas prices in the US, which were up massively over the past month, that all suggest that inflation is likely to head up and be sticky and as a result, getting into interest rates. There are some headwinds with the Fed. There'll be a change in leadership there and maybe that allows them to cut a little bit, but it's hard to see how they'll cut by as much as the market expects over the coming year. Europe, they've cut already, they might cut again, they don't really need to. In Japan, in contrast, we are likely to see increases. So, I'd say all told, there are signs that growth is likely to come in a bit below, inflation a bit above, and we're probably not going to see the sort of support we would like from the Fed.  

Jeremy: And you also talk, Chris, about icebergs ahead in direct quotes there. I guess that would mean risks that are not fully priced in. What are those icebergs that you'll be looking out for?

Chris: I'd suggest the primary one is relationships between China and the West and Taiwan - it's always going to hang over markets and hopefully in time we start to see some of the pressure pull back there, but there's always a chance that we don't, and that's certainly on our radar. 

Jeremy: So, Chris currencies have been another area of unpredictability. How do you assess outlook for the dollar? And again, let's bring it back to South Africa. What could that mean for the Rand in 2026? 

Chris: Even after recent weakness, the dollar is still expensive in our view. If you look at the dollar adjusting for inflation and trade weighted, it's still not far off the strongest that we've seen in the past 20 years, and we've got potentially misses for growth coming in the US and potentially higher than the market expects inflation. And the combination of that, I think suggests that we are likely to see further dollar weakness, and that would mean rand strength. All the rand strength we've seen over the last 12 months has come about simply as a result of dollar weakness. And so that does suggest that we are likely to see some more strength for the rand, although we are not pencilling in a number below 16 as an example. We think we are just going to see a bit of rand strength taking it to a bit stronger than 17 over the coming year. So perhaps that's actually more stability rather than strength. 

Jeremy: So, against that backdrop, how should investors be thinking about constructing a portfolio in a world where, as you've said, the US dominates performance, yet those valuations are stretched?

Chris: We need to diversify, and the US is a massive part of global indices, and the US is a very concentrated market by itself, and we need to seek opportunities outside of the US and Europe and Japan, and emerging markets as a starting point in portfolio construction.

Jeremy: So, let's take a look now at South Africa's prospects specifically. What's the local risk score in your latest report and what's the group reasoning behind it?

Chris: In contrast to our concerns about the global economy and global markets, we've got a +1-risk score for South Africa, again, on a range from -3 to +3. We see a range of tailwinds for the South African economy. Government revenue, we think, will surprise on the upside, again, in the budget. We're seeing private sector credit extension pick up to 7% year on year, as an example, the highest rate we've seen in three years in and close to pre-COVID levels, we've seen a turnaround in SOEs and there's a range of other indicators too that suggests that our market should be optimistically priced. But then if you look at our stock market trading on a forward -p of 11 versus the 23 we mentioned for the S&P earlier. So there's still very little credit given to the prospect of a turnaround in the South African economy. We think the local market is still underpriced. We've been overweight for some time, and we are continuing to be overweight.

Jeremy: And we also have to talk about behavioural risks. This year, investors were tempted by AI stocks, crypto rallies, meme stocks, high beta trades. How does your investment philosophy then guard against behavioural errors, both in process and for clients?

Chris: I think we'd need to take a long-term approach, and that's what we do throughout our investment philosophy. And if we can't have comfort that something will be around in five years and we are necessarily not even going look at it. And if we think that there's a risk that will have face capital loss over five years, we are going to discount it as well. So, I think if your starting point is that we taking a view of what is going to happen over the next five years, a lot of the sort of meme stocks, a lot of the things that are likely to rally in the next couple of months, becomes significantly less attractive and I think that is the right approach.

Jeremy: So, finally, as we wrap up the year, maybe let's end with a slightly more reflective question. What has 2025 taught you about investing in uncertain times

Chris: I would think that there's two things. For one, it can take a long time for valuation to affect returns. We've seen this in the US; it was expensive and then it got more expensive. But ultimately, there's a point where it starts to correct, and I think that's what we've seen over the last year. We've had to wait for a while for it but it's starting to occur. And the second is the underlying resilience of the global and the US economy. Despite all the uncertainty, the fact that rates didn't come down by as much as expected, we still saw an economy just continue to tick along. And I think that is certainly something worthy of reflection. 

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