Navigating AI, inflation, and global uncertainty in SA
South Africa’s financial landscape is being shaped by a range of powerful global and local forces. Artificial intelligence (AI), decarbonisation, geopolitical tensions, and inflation are no longer future challenges - they are active dynamics influencing insurers, investors, and businesses right now.
For South Africa, these forces present both risks and opportunities. While emerging markets (EMs) still offer structural growth potential, global volatility and local uncertainties mean that investment strategies must be sharper, more adaptive, and more diversified than ever. Inflation trends, interest rate trajectories, and the growing influence of AI in the financial services space are already shifting the way insurers and investors think about the future.
Ferdi van Heerden, CEO of Momentum Investments, shares his expert insights into what lies ahead for South African investors - and how the industry can adapt and thrive in a rapidly changing world.
South African assets set for repricing amid stability
According to van Heerden, the outlook for local asset classes is fundamentally supported by compelling valuations, provided the political landscape remains stable, and the Government of National Unity holds. “The relatively cheap valuations of the SA equity and bond markets indicate that investors attach large risk premia to these assets. This should provide positive support for future returns of SA asset classes,” he says.
South African equities stand out among their emerging market peers. “They remain attractively valued, maintaining around one standard deviation discount to the historical average relative forward P/E since Covid.” South Africa also continues to be a strong dividend payer within the EM group – “currently at almost a 40% premium to EM on a forward dividend yield basis.”
Van Heerden points out that SA equities are also under-owned by global EM funds, which positions them well for future inflows. “There is little selling pressure within these funds,” he explains. “Even with strong performance in the past year, SA equities still trade favourably against long-term averages, even on conservative profit growth assumptions.”
On the fixed income side, South African government bonds remain compelling. “SA government bonds continue to provide some of the highest backwards-looking real yields in the world - only exceeded by Brazil and Mexico within the large EM peer group. The current almost 5% real forward-looking bond yield is around one-half of a standard deviation above the historical average.”
Global megatrends create new growth engines
Emerging markets are playing an increasingly critical role in global transformation, particularly around AI and the race to net-zero emissions. Van Heerden highlights the relative attractiveness of AI-linked stocks in emerging markets compared to their developed market counterparts. “Although EM AI P/E valuations have caught up with those in DM, the growth rates expected from EM AI companies far exceeds that from DM AI stocks,” he explains.
He identifies several key Asian markets where AI-related companies are leading innovation – “Taiwan (TSMC), China (Tencent and Alibaba), and South Korea (Samsung and SK Hynix) all supply crucial components, develop AI applications or employ AI in their core businesses.” South African investors can access this exposure indirectly, too. “Indirect exposure to Tencent can also be obtained at a discount via the SA listings of Naspers and Prosus.”
In parallel, the global transition to net-zero will increasingly rely on the decarbonisation of emerging markets. “EMs are vital to achieving global net-zero targets by 2050, given their projected contribution to the largest future emissions growth,” says van Heerden. He argues that decarbonising these markets will require “substantial capital investment in clean energy infrastructure and transition strategies within energy-intensive industries.”
This presents opportunities for insurers and institutional investors. “Investors, including insurers, have the opportunity to provide financial support to projects that prioritise tangible decarbonisation efforts in emerging markets.”
Inflation moderation may open the door to lower rates
Inflation in South Africa appears to be on a stabilising path, creating room for more supportive monetary policy in the medium term. “The moderation in inflation in January supports our view of contained inflation in 2026. We revised our inflation estimate lower to 3.2% for 2026 on the back of favourable inflation outcomes and the expected outlook,” van Heerden says.
Looking forward, he sees scope for interest rate cuts around mid-2026. “The SARB is scheduled to announce the second-interest rate decision for 2026 in March after keeping the repo rate steady in the January meeting. The expectation is a close call on the interest rate decision given re-emerging pressure in international oil prices and persistent services inflation. However, we anticipate two 25 basis points cuts in 2026 and one more 25 basis point cut in 2027.”
AI, geopolitics, and infrastructure
The evolving role of AI across the insurance and investment value chain cannot be overstated. “AI will impact the insurance industry in several ways - automation, innovation in product design and service delivery, efficiency enhancements and risk management through improved analytics,” says van Heerden.
He expects AI to reduce operational costs, speed up claims processing, and enhance fraud detection and client engagement through automation. “From an investment perspective, AI will increasingly support decision-making as a complementary analytical input for investment professionals.”
Geopolitical uncertainty remains a significant risk factor. “A higher protectionist global environment creates uncertainty around the direction, magnitude and duration of tariffs and non-tariff barriers for a small, open economy like South Africa,” he explains. Rising geopolitical tensions could also defer private investment and weigh on job creation.
To navigate this complexity, van Heerden recommends that insurers and investors adopt several key strategies:
- Dynamic asset allocation using scenario planning;
- Increased use of derivatives and hedging for tail-risk protection;
- Geographic diversification to reduce domestic risk;
- Allocations to alternative asset classes like private equity, infrastructure, and real assets.
On the domestic front, South Africa’s push for infrastructure development presents opportunities for long-term capital. “The government and commercial sector must BREAK work together to develop a trusted environment backed by security-enhancing mechanisms,” he says. Public-private partnerships (PPPs), blended finance models, and clearly structured transactions will be key to mobilising capital.
“Insurers, as long-term holders of capital, have a role to play both as a potential allocator of capital to these projects as well as playing an advocacy role with their clients.”
Staying grounded amid complexity
Despite the headwinds, van Heerden believes the industry has a clear path forward. “The financial services industry is shaped by complex pressures - regulatory changes, political shifts, economic volatility, technological disruption, and evolving client expectations,” he says. “It’s never easy and rarely clear-cut.”
He urges advisers and industry professionals to stay grounded. “Within complexity lies opportunity. Advisers who remain connected to their clients and are committed to deeply understanding their clients’ needs - and who match those needs with well-considered solutions - will continue to add meaningful value.”
Above all, he reinforces a core principle: “Time in the market, not timing the market, remains one of the most powerful drivers of long-term outcomes.” In this context, financial advisers have a crucial role to play. “This is a time when investors require sound advice. Let’s continue to walk alongside our clients, offering clarity, empathy, and purpose.”
Writer’s thoughts
As we navigate these turbulent global and local forces, it’s clear that South Africa’s financial landscape presents both challenges and opportunities. By staying adaptive, leveraging emerging trends like AI and decarbonisation, and focusing on long-term strategies, investors and insurers can thrive in an increasingly complex world, securing a prosperous future for both their portfolios and the economy at large. Do you agree? Please comment below, interact with us on X at @fanews_online or email me your thoughts.
