SA versus US equities through an adviser lens
Artificial intelligence (AI) and President Donald Trump’s policymaking dominated financial market news flows through 2025 and look set to do so again in 2026.
Just three days into the New Year, the United States (US) carried out what is best described as an ‘irregular’ extradition of Venezuelan President Maduro, and at the two-week mark, there was a real possibility of the Western superpower intervening in Iran. The tariff here, tariff there, tariff everywhere philosophy remained strongly embedded too.
Value in short supply
Lyle Sankar, Chief Executive Officer at PSG Asset Management, conceded that AI and Trump had an outsized impact on the investor experience through 2025, while the US financial markets had become increasingly concentrated during the year.
“Looking ahead into 2026, the key challenge will remain finding opportunities trading at reasonable long-term valuations and not overpaying for assets,” he wrote in a 2026 outlook piece. “Whether it is through his market-moving tweets or trade policy interventions reshaping the global world order, there can be little doubt that President Trump loomed large on the investor landscape last year.”
He joins a long list of commentators who are uncertain whether Trump’s policies will have a positive or negative outcome for the US economy over the medium-to-longer term. Concerns centre around the ever-growing US debt pile and the impact of tariffs and dollar weakness. According to Sankar, US debt grew to over USD38 trillion by October 2025, bringing the sustainability of the US fiscal trajectory into question.
At the same time, ‘America First’ trade policy, growing debt concerns and a rethink of US exceptionalism weighed on the US dollar, dragging the Dollar Index (DXY) down 10% for the year to 31 December 2025. This slide has not gone by unnoticed at the southern tip of Africa, where the rand posted its strongest one-year performance against the dollar in over a decade, almost 13% better.
Emerging markets on the front foot
There were two other notable developments in 2025. First and foremost, Trump remained hell-bent on installing a US Federal Reserve Chair who is more sympathetic to his interest rate views. Second, the gold price built on 2024’s strong performance to rise another 62% and ‘set up camp’ well north of USD4000 per ounce. By mid-January, the precious metal had surged past USD4600. Taken together, these factors have boosted emerging markets and China “after many years of underperforming the US.”
One of the questions that financial advisers will have to field this year is whether US AI and tech shares are in bubble territory. “In October 2025, Nvidia became the world’s first USD5 trillion company,” said Sankar. “Although AI exuberance has continued to drive stock markets, late October marked something of a ‘sentiment shift’ as investors started questioning the circular nature of various deals and became concerned about a move away from funding AI capex from free cash flow to using debt financing.”
You need only spend a few minutes Googling the phrase ‘AI circular economy’ to discover what equity analysts are concerned about. As one example, PSG noted that OpenAI has done deals totalling nearly USD1.5 trillion with suppliers of processing power despite generating only USD12 billion in revenue for 2025. There are also plenty of offset deals, such as Nvidia investing in various AI engines provided they commit to purchasing Nvidia chips, a bit like buying lemonade from your kids’ lemonade stand.
The hyperscalers appear stretched
Asset managers are starting to ask questions about who will fund future capex. “The hyperscalers (companies that run large cloud-based data centres) may have deep pockets, but they do not have unlimited cash flows and are increasingly turning to debt to fund investment in AI infrastructure,” wrote Sankar. He added that while it was easy to get caught up in the hype surrounding AI, it was far from clear who the ultimate beneficiaries of, and winners from, the AI revolution would be.
As your writer researched this piece, it became clear how easy it is to blur the lines between so-called hyperscalers and those involved in the circular AI economy. There is plenty of potential overlap, but it seems fair to lump just four names into the former category, namely Amazon, Alphabet (Google), Microsoft and Oracle. The AI realm itself is dominated by the unlisted OpenAI and circled by Microsoft, Nvidia, Oracle and specialist compute provider CoreWeave (also unlisted), with adjacent links to chipmakers AMD and Intel.
US share indices such as the Nasdaq and S&P 500 are heavily skewed towards AI and tech, resulting in unprecedented levels of market concentration. “In the past, aligning closely to an index was often viewed as a way to mitigate risk, especially since the index so often serves as a benchmark for funds,” explained Sankar. “But the diversification benefits many believe indices offer are eroded as markets become increasingly concentrated.” In this case, tracking the S&P 500 results in our client taking on higher risk than they might realise.
Through the offshore looking glass
So, what can your clients expect from US equities in 2026? PSG reckons plotting an investment course for the year ahead may be tricky due to deep-seated changes in the investment environment. They suggest these changes will fundamentally impact where future returns originate.
“While no-one knows what this landscape will ultimately look like, we believe that it is especially important to ensure that you don’t overpay for assets at this critical juncture,” Sankar said. “Investors will be well served to remember that the price paid for an investment remains one of the key drivers of outcomes achieved.”
The team at PSG Asset Management addresses uncertainty using its proven 3M investment process to identify and invest in overlooked assets that are trading at a discount to their intrinsic value. This is a process FAnews has covered numerous times over the years, involving a rigorous assessment of management quality, identification of an enduring competitive moat and allowing for a sufficient margin of safety. This process applies equally in domestic and offshore equity markets.
Momentum shifts to SA equity
Shifting focus to South Africa, your clients will be asking whether the JSE can repeat its 2025 performance, during which the JSE All Share index climbed around 38% higher and the resources sector surged 120%.
“Despite the heightened uncertainty induced by the second Trump presidency, 2025 turned out to be an exceptional year for South African investors due to rampant platinum group metals (PGM) and gold prices,” noted Herman van Papendorp, Head of Asset Allocation at Momentum Investments, in a January 2026 market review.
The asset manager is “cautiously confident about the prospective trajectory of the SA economy and local asset class returns in 2026, with further local rate cuts and some growth acceleration expected from a low base.” The hope is that last year’s JSE All Share performance will rekindle foreign investor appetite in equities, as is already the case for SA bonds.
Some promising signs for 2025
“An increased global allocation to EM equities could simultaneously result in material global inflows supporting SA equities, particularly given that SA is a high-beta play on EM equities,” Papendorp said. He added that strong profit momentum meant SA equities were attractively valued against global peers. And that, dear reader, is asset manager speak for “2025 is going to be an ok year.”
Writer’s thoughts:
Local equities delivered impressive returns in 2025 while offshore markets became increasingly skewed towards a narrow group of US AI and tech stocks. That means everyone should be piling into local equities, right? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
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