Forecasts pale next to planning
As global financial markets power into February 2026, FAnews has hardly scratched the surface of asset manager outlook presentation coverage. No surprises here, given there are more than 500 local asset management firms applying their trade domestically across the bank, insurer and independent segments.
Blubbering about market corrections
A notable observation on reviewing 10-day-old analyses is that investors are fickle, and that financial markets can make big, significant swings against the mainstream opinion. Just last week, one of the Magnificent Seven plummeted as much as 12% on a single trading day, burning through USD400 billion in market cap. Days later, the investment universe was blubbering about a notional USD5.5 trillion pullback in the gold market. The precious metal retreated from its all-time high of around USD5,500 per ounce to just (sic) USD4,600 per ounce.
So, with the caveat that financial markets will do what they do, here follows a quick wrap of PSG Asset Management’s asset allocation view, as presented by the firm’s Head of Equity, Justin Floor late January. “Things are never as bad as you think, and they are hardly ever as good as they might seem,” he said, commenting on the difficulty in seeing through market noise and record valuations. He also warned that the worst investments are made when “everything feels lekker”. Lol, just ask anyone who bought gold or silver a couple of weeks back.
He offered some ‘advice for financial advisers’ early on during the presentation, thanking the audience for what they do to encourage clients to stay the course and stick to their long-term financial plans. He credited the asset manager’s consistent, value-focused investment philosophy for its long-term performance, sharing catchphrases like ‘buying mis-priced quality’ and ‘balancing quality with price’ to illustrate the process. “We do not just buy the cheapest thing we can get our hands on; we try to find inherent quality that the market is missing,” he said.
Going ex-US for returns
Reflecting on last year’s asset class performances, Floor hinted that future returns would come from outside of the United States (US). He restated the need to diversify portfolios in the dual contexts of stretched US equity valuations and too much global capital being concentrated in the world’s largest economy. The skew away from developed markets (DM) was on full view in the 2025 recap, with emerging markets (EM) leading the returns tables. Locally, the JSE All Share index boasted a total return of 41.3% in rand, and even better in US dollars.
Commenting on other asset classes, the presenter noted that rand-based investors ‘lost’ money in both global bonds and cash. “The rand was a big headwind for global bond and cash investors … they did not do a great job in terms of growing capital,” Floor said, raising concerns that global bonds have lost their diversification and rand hedge traits. On the plus side, 2025 was a stellar year for SA bonds. The South African All Bond index returned 24.2%, and over 30% for those “brave enough or fortunate enough to be at the long end of the curve.” Even SA cash offered 7.5% in rand, though this will dwindle in coming years as the central bank cuts rates.
A deep dive into 2025 SA equity returns makes for an interesting read. The 41.3% return was entirely a resource story, primarily driven by resurgent gold and platinum group metals (PGM) prices. Banks did reasonably well, but retailers struggled. In the end, the asset manager noted that 75% of the 41.3% return came from only four areas: gold miners; PGM miners; the Naspers-Prosus complex; and MTN. “You had to make four decisions to capture 75% of that return; if you got too many of those four decisions wrong, it was a tough year,” Floor said.
Shaping adviser-client conversations
And that, dear reader, is how you shape adviser-client discussions on why their balanced fund returned a mere (sic) 20% versus the JSE’s 40% plus. PS, Floor also offered an excellent ‘in’ for discussions on the current year outlook. “We expect the JSE returns to moderate materially, but more importantly, we think the source of future returns is going to change,” he said. “Resources have led, but my suspicion is the other JSE sectors are going to do the heavy lifting over the coming years.” To succeed in 2026, you will have to get your exposure to the financial and industrial sectors spot on.
As already mentioned, concentration risk and stretched valuations will make it more difficult for portfolio managers to squeeze returns from US equities. “Our sense is over the next three to five years, we would expect very low returns out of US equities,” Floor said, using a slide of US dollar returns across major MSCI indices to illustrate the point. The MSCI US returned 18% in dollars in 2025, but global ex-US did almost double that. Overall, PSG benefited from a global equity allocation skewed towards Europe and EM.
So, what does 2026 hold? Floor warned of the danger in making forecasts or predictions, stating a preference for considering asset class potential in light of emerging themes. He offered a long-term history of US dollar cycles as “the most important chart investors should be thinking about this year” and potentially for the next decade. The chart showed multi-year periods of dollar outperformance and dollar underperformance against a trade-weighted currency index.
For example, the dollar suffered an 11-year weakening in the 1970s after Bretton Woods, and a seven-year weakening following the dotcom collapse. In contrast, the dollar recently strengthened over the 15-years to just after the world’s exit from the COVID-19 pandemic.
Benefitting from dollar weakness
Floor noted that commodities and EMs do exceptionally well during periods of dollar weakness, before offering a base case view that the US dollar had likely entered another weakening cycle. “We are about 18- to 24-months into a cycle that tends to last 11- to 15-years,” he said. You and your clients will, therefore, have to begin thinking about asset class returns in a stronger rand world. And that means positioning for a strong rand, strong EM currencies, and looking outside of the US for equity returns.
The challenge is going to be shifting away from asset allocations that are deeply linked to the 15-year-long ‘strong dollar’ and US equity boom the world has just emerged from, to a radically different paradigm. According to Floor, South African investors have a head start over most global investors due to our proximity to the commodities trend and our access to quality, locally listed mining stocks.
At this point in his presentation, he offered some comment on the two-year-long gold price rally. His comment about gold “having an equal probability of going to USD8,000 per ounce as it does of going back to USD1,000” proved prophetic, as days later the precious metal imploded from a USD5,500 high to USD4,600 in a single day. Investors were warned to think carefully about gold exposure, and to diversify appropriately.
Commenting more broadly, the equities expert noted that macro fundamentals were “much better” in EM than DM. EM have lower debt-to-GDP ratios, higher real yields and, in many cases, near DM-level inflation. South Africa also enjoys an added tailwind thanks to a favourable balance of trade derived mainly from commodity exports and oil imports. PSG likes markets with real yields, including Brazil and South Africa, but is wary of many European economies that are sitting on a lot of debt and offering “skinny” real returns.
A risk turducken
Floor ended by saying there are no clear answers in the current market environment. He commented on a “risk inside risk inside risk” landscape spanning concentrated indices, geopolitical uncertainty, questions around central bank independence and stretched valuations. “Make sure your portfolios are diversified (and use managers that can help you with that) and be a bit sceptical of consensus,” he said. To excel in 2026, you need to have a plan and stick to it rather than reacting to short-term market moves.
Writer’s thoughts:
Diversification and financial planning matter more than forecasts when markets turn volatile. Where do financial advisers add the most value: in asset selection or in keeping clients invested? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
