Foord Asset Management recently held its final Mind of the Manager Webinar for 2024, where five seasoned portfolio managers offered five scenarios that investors may need to navigate in looking to thrive in 2025.

From a “boring is better” defensive approach to the reasons hospitals will deliver healthy returns despite NHI concerns, the panel – moderated by Linda Eedes – offered the following astute insights to help investors remain resilient amidst global uncertainty.

1. US defensives could outperform

A scenario proposed by Portfolio Manager Brian Arcese is to invest in regulated utilities, particularly in the electricity transmission and distribution sectors. “In an electrification-of-everything world, many regulated utilities will once again become growth engines – albeit modest but consistent – which is not priced into certain firms’ valuations,” said Arcese, emphasising their stability amidst global macroeconomic uncertainty. “Electricity volumes are expected to rise by 2% annually, reversing decades of stagnation, while costs to consumers are projected to decrease, providing a strong and stable return profile for investors.”

Arcese described the sector’s appeal as a form of “defensive growth,” ensuring resilience even in challenging macroeconomic conditions: “In a market that continues to perform well, these utilities can still compound at double-digit rates.”

2. China may be one of the best performing global share markets

Portfolio Manager Ishreth Hassen discussed the attractive potential for investment in the Chinese share market through 2025, given its current economic positioning, stimulus support, and valuation advantages. “Valuations remain compelling, with Chinese corporates holding cash reserves equivalent to 27% of their total market cap, positioning them to deliver exceptional shareholder returns,” Hassen explained.

He added that specific sectors such as technology and clean energy present significant opportunities. “China is positioned as the world's largest manufacturer of clean energy products, with a dominant share in electric vehicles and batteries. With the government now actively supporting shareholder returns through buybacks and dividends, we expect strong outperformance relative to global peers.”

3. Inflation could come roaring back

Portfolio Manager Rashaad Tayob forecasts a resurgence of inflation, driven by synchronised rate cuts, fiscal stimulus, and supply chain constraints. “While many people think the inflation dragon has been slayed, we’ve seen the forces that drove it in 2021 – such as supply constraints, monetary easing, and fiscal overspending – are reappearing, albeit in different forms,” Tayob explained.

He recommends inflation-linked bonds to hedge against this scenario: “In South Africa, these bonds offer real yields of 5%, while in the US, yields of 2% are at their highest in two decades. Even if inflation stays subdued, these provide excellent real returns, and if inflation surprises to the upside, the returns could be exceptional.”

4. It’s still a minefield out there – avoid the landmines

According to Portfolio Manager Wim Murray, investors in South African equities should avoid companies with weak business models to thrive in 2025. “A big contribution to portfolio performance is simply missing the landmines,” he explained, highlighting the risks of capital-intensive businesses with high fixed costs, weak fundamentals, and overstated earnings. “The pain is ultimately borne by investors when these businesses fail to deliver.”

Instead, Murray advocates for resilient, cash-generative companies, especially in defensive industries like food retail. “We prefer South African businesses that don’t rely on economic growth to deliver for shareholders. Companies with high free-cashflow and strong market positioning can thrive regardless of economic growth.”

5. Hospitals will deliver healthy returns despite NHI concerns

Finally, Chief Investment Officer Nick Balkin addressed the uncertainties surrounding South Africa’s proposed National Health Insurance (NHI) scheme, explaining why private hospitals could remain a compelling investment in 2025. “NHI is a complex and costly concept, and significant delays are inevitable. Even conservatively, it will be more than six years before NHI is fully established, and that’s assuming that no further legal or logistical challenges arise.”

As such, Balkin believes that private hospitals will continue to play a crucial role in healthcare, not only as service providers to government, but also for patients with private medical insurance. “Netcare, for example, has invested significantly in IT systems and infrastructure, which is driving cost efficiencies and supporting robust earnings growth. Hospitals are therefore well-positioned to deliver healthy returns in 2025,” Balkin concludes.

An audience poll revealed strong concurrence with the risk of landmines exploding in the South African share market in 2025, narrowly edging out the scenario of robust Chinese share market growth which also resonated with the audience.