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CIARAN RYAN: Christmas is just around the corner and then it’s 2026. Where did the year go? It’s been a good year for the JSE, with a 30% jump in the All-Share index, more or less driven predominantly by precious metals. Can this continue, though, into 2026, and what are the likely sparks of growth as we head into the new year?
To help us understand this, we are joined once again by Adriaan Pask, chief investment officer at PSG Wealth. Hi, Adriaan. Good to talk to you, as always.
Did 2025 play out more or less as you expected, and what can we expect as we head into the new year?
ADRIAAN PASK: Hi Ciaran, and hello to everybody listening in. I think it’s one of those situations where, over short periods, things can be quite unpredictable.
We generally prefer to focus on the more structural factors that shift over time when we think about the opportunities and challenges we may face.
We were expecting a volatile year, and that has certainly played out. I don’t think anyone expected a placid administration out of the US, nor did anyone anticipate a quick resolution to any of the geopolitical tensions.
But there have also been a few surprises on the fiscal-policy front, both domestically and abroad, as well as on the monetary-policy side. Ultimately, these two areas are major drivers of where markets may be heading and where volatility could emerge.
CIARAN RYAN: One of the surprises for many people as we entered the year just past, 2025, was how well the rand performed. And then we were removed from the grey list. Those were two kind of nice surprises, and suddenly, things started to look quite promising for the economy.
Do you expect this momentum to continue into 2026?
ADRIAAN PASK: Yes, I think so. We often think about exchange rate movements purely from the perspective of a South African investor, but much of what we have seen recently has actually been driven by dollar weakness.
The dollar has fallen out of favour, and central banks globally have started moving away from US Treasuries and increasing their gold stockpiles. That shift, in itself, will influence the dollar and contribute to where the weakness is coming from.
Naturally, the exchange rate will benefit from this, and the rand will strengthen. But at the same time, we are also seeing early signs of improvement within South Africa itself, which supports that trend.
The grey-list issue is quite important. It’s always interesting to see how negative the reaction is when we go onto the list, yet when we are removed, markets seem far less responsive to the good news. But over time these factors do start moving in the right direction and ultimately have a collective impact.
We’ve also seen Eskom’s latest results, and financially they appear to be in a better position.
Transnet has been a huge stumbling block, yet volumes are suddenly starting to pick up again.
As for the GNU – the government of national unity – although it is volatile, and we shouldn’t expect anything less in politics, it does seem to be working with a more unilateral view and policy direction. There is a lot more scrutiny on that front, which is positive in the long term.
We’ve seen strong communication from the Reserve Bank as well – around how they see policy going forward, what they envisage for the country from an inflation perspective, and why that outlook could be supportive.
And then there are the broader economic indicators, such as the PMI, the Purchasing Managers’ Index. Confidence levels are returning, and car sales are moving higher. So there are quite a few things on the ground that seem to be pointing in the right direction.
CIARAN RYAN: There has also been talk about a potential market bubble in the US. How do we interpret this? Do you see the discussion about a bubble as relevant, and is this likely to play out negatively in 2026?
ADRIAAN PASK: That’s really the big question – the elephant in the room, really. In our process, we focus on valuation, which is especially important because we don’t want to overpay for assets.
When you look at a market like the US and see where valuations are trading, it does look quite concerning. Over the long term, markets typically don’t fare well when investors ignore valuation and enter without considering the structural implications.
That being said, market valuations have almost no correlation to short-term market movements. In other words, it’s just as likely for markets to pull back as it is for them to get more expensive in the short term.
Over the long term, valuation becomes a serious structural issue, but you should be careful not to infer a pullback from valuations alone. Our view is that a pullback could happen, and current valuations suggest one might be warranted somewhere on the horizon.
But we also think of Peter Lynch [US mutual fund manager, author and philanthropist], who used to say that more people have lost money waiting for corrections than in the corrections themselves. Investors who have been calling for a market collapse for years have been sitting on the sidelines. So you need to be very careful.
A key change this year – and one we expect to continue next year – is the shift in monetary and fiscal policy.
In the US, higher interest rates and attempts at fiscal restraint initially made growth prospects more uncertain, leading investors to be cautious. But we’ve also seen the administration exert influence on the Fed to soften conditions, and new Fed leadership could bring lower interest rates in the near term. While a compromised Fed may not be ideal long-term, it is positive for markets in the short term.
On the fiscal side, there’s been a notable shift. Early discussions emphasised addressing the fiscal deficit and improving government efficiency. Elon Musk’s high-profile push to cut spending through the Department of Government Efficiency highlighted this focus.
However, in practice, federal spending has continued at elevated levels, reflecting a mix of priorities aimed at supporting economic growth. In other words, while rhetoric suggested fiscal restraint, actions suggest a continuation of spending to sustain activity.
So, with both fiscal and monetary tailwinds in play, you have to be very careful before betting against the economy or markets.
We maintain a balanced view: risks are certainly high, but waiting for corrections and staying in cash may be riskier. For equity mandates, the right approach is to position defensively while still aiming for growth. There are very good businesses generating solid free cash flow that don’t demand extreme valuations. Focusing on these opportunities, rather than sitting on the sidelines, is key to navigating the current market environment.
CIARAN RYAN: Right. And finally, if you’re talking about interest rates as we’re heading into 2026, things are looking quite positive for South Africa. The Reserve Bank’s new 3% target appears to be working, and it has buy-in from the government and just about everybody else. So things could be quite positive for people who want to take on debt next year.
But how does one, as an investor, navigate all of these tailwinds, rocks and hurdles that you’ve just been talking about as we head into 2026?
ADRIAAN PASK: I think in the South African context we’re very fortunate because, while US valuations are getting to extreme levels, South African assets remain cheap regardless of the fact that they’ve rallied by 30%, as you’ve mentioned. That rally was largely focused within the precious metals space, with the PGMs [platinum group metals] and gold rallying.
We still see quite a bit of opportunity in domestic markets, especially as banks continue to pay out very decent dividends. They remain cash-generative. Free cash flow yields are quite high and they’re still growing. So there are definitely opportunities domestically, and you can invest there without being too worried.
Should we see a US pullback, most markets will likely sell off in a panic. However, we expect South African assets to rebound toward more normalised levels.
The real question is whether you want to participate now. Yes, there may still be an opportunity to buy in at lower levels if markets dip further. But in our view, you run the risk of outsmarting yourself if you wait, only for the rally to continue without you.
As you mentioned, the currency has been exceptionally strong, yet we haven’t seen foreign investors return to South African equities. They’ve begun re-entering the bond market, but equity flows remain absent. The buying we are seeing is largely domestic–driven by improved sentiment among major local institutions that feel more confident about the current environment.
If we start to see significant US capital reallocating into markets that have been overlooked for more than a decade – particularly international and emerging markets – South Africa screens very attractively from a valuation perspective. And, importantly, many of the macro and political constraints that weighed on sentiment a year ago have now eased.
All of this still provides a solid underpin for South African assets specifically.
CIARAN RYAN: All right. We’re going to leave it there. That was Adriaan Pask, chief investment officer at PSG Wealth. Thanks very much, Adriaan.
ADRIAAN PASK: Thanks very much, Ciaran. I enjoyed the chat.
Brought to you by PSG Wealth.
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