The global economy is transforming, reshaping the landscape for investors and economies alike. As these era-defining mega forces – artificial intelligence (AI), decarbonisation and ageing populations – unfold, Cogence’s 2025 Market Outlook, in collaboration with BlackRock and RisCura, identifies opportunities amid a dynamic and uncertain environment.

Key highlights of the Cogence 2025 Market Outlook:

• The US continues to benefit from structural mega forces like AI, with 2024 delivering a 25% return (USD) for the MSCI USA Index. However, heightened valuations could introduce some risk in 2025.
• AI infrastructure spending could exceed US$700 billion by 2030, driving innovation and sectoral growth in energy, healthcare, and infrastructure.
• South Africa’s performance stood out, with the FTSE/JSE All Bond Index returning 17.2% (ZAR), with the Small Cap Index and property sector delivering 35.6% and 29.8% (ZAR), respectively, supported by easing inflation and political stability.
• South Africa’s inflation rate dropped significantly from 7.9% to 2.9%, enabling further rate cuts and improving investor sentiment.
• The Federal Reserve’s gradual rate-cutting cycle creates opportunities in emerging markets, with South Africa, Saudi Arabia, and India well-positioned to benefit.
• Cogence highlights the importance of dynamic, granular investment approaches to align with mega forces reshaping economies.

2025 is not just another year – it will be a pivotal one for investors, says Jonel Matthee-Ferreira, CEO and CIO of Cogence. “The global landscape is shifting, and portfolios need to reflect this transformation. Dynamic, granular strategies that leverage active and passive approaches are critical to navigating the complexity ahead.”

Global equity markets have demonstrated resilience over the past two years, with the United States (US) leading the charge. In 2024, US equities, as measured by the MSCI USA Index, delivered a 25% return (USD), following a 27% gain in 2023. These exceptional results defied predictions of slower growth, supported by strong economic fundamentals, an accommodative fiscal environment, and significant private investment – particularly in AI.

Locally, South Africa emerged as a standout performer. The FTSE/JSE All Bond Index (ALBI) recorded a robust 17.2% return (ZAR), while the Small Cap Index and the property sector delivered 35.6% and 29.8% (ZAR) respectively. Political stability, a resilient rand, and moderating inflation contributed to this exceptional performance.

“These results reaffirm our view that the world is not in a normal business cycle,” says Matthee-Ferreira. “Structural transformations, not cyclical factors, are driving markets. Inflation has eased, but economic growth has continued – challenging conventional assumptions about portfolio construction.”

Looking ahead, Cogence remains optimistic about developed-market equities, particularly in the US and Japan. AI continues to drive innovation, with BlackRock projecting that spending on AI infrastructure could exceed $700 billion by 2030, equivalent to 2% of US GDP. As the AI evolution progresses from infrastructure buildout to adoption and eventual transformation, sectors like healthcare, energy, and infrastructure are expected to benefit.

However, the landscape is not without challenges. Rising term premiums in the US, geopolitical tensions, and elevated valuations, with the S&P 500 trading at 25 times earnings, introduce volatility. “While we remain pro-risk in US equities, the atypical environment requires an agile approach,” explains Matthee-Ferreira. “Markets are realising that valuations, while elevated, must be interpreted through the lens of economic transformation.”

South Africa’s growth story continues to capture attention. Inflation fell dramatically in 2024, from 7.9% to 2.9%, creating room for the South African Reserve Bank to cut interest rates. The formation of a Government of National Unity (GNU) has stabilised the political landscape, while public-private partnerships have accelerated infrastructure development.

“South Africa offers a unique investment opportunity,” says Matthee-Ferreira. “The equity market rally has been strong, yet valuations remain attractive. Foreign investors have yet to fully capitalise on the market’s potential, which creates further upside.”

Emerging markets in focus

Beyond South Africa, emerging markets are poised for a good year. The Federal Reserve’s gradual rate-cutting cycle is widening the interest rate differential in favour of emerging market assets. BlackRock highlights regions like Saudi Arabia and India as particularly compelling, given their alignment with mega forces like decarbonisation and AI.

South Africa’s modest trade surplus with the US, at less than 2% of GDP, also positions it favourably in the face of potential protectionist trade policies under new US leadership. However, greater clarity on trade relations on the global stage and progress on local reforms will be crucial to manage growth expectations going forward.

“Emerging markets require a granular approach,” says Matthee-Ferreira. “Country-specific dynamics, such as structural reforms and demographic trends, play a critical role in identifying the most promising opportunities.”

Flexibility will be paramount as investors navigate this transformative period. “We update our portfolios monthly – or intra-monthly, if needed – to respond to shifts in the environment,” says Matthee-Ferreira. “Dynamic, thematic strategies that align with mega forces are essential to capturing growth in this new era.”

From the continued momentum in US equities to the untapped potential of South Africa and broader emerging markets, Cogence’s 2025 Market Outlook reinforces its commitment to cutting through the complexity of modern investing with clarity and insight.