South Africa’s reform progress has yet to translate into relief for household budgets, a flat equity market masks differences between sectors, while assets traditionally bought for protection (safe havens) are also under pressure. These conflicting signals show why markets and asset classes do not always follow the usual playbook.
Reforms take time to reach households
South Africa’s economy remains under strain, although there are signs of progress. Reforms in electricity and rail sectors are gaining momentum, with the private sector playing an important role. But poverty, crime and unemployment remain persistent challenges.
For households grappling with rising interest rates, high inflation and increasing fuel prices, that progress can be difficult to feel. While reforms are moving in the right direction, it will take time before consumers see tangible benefits. These perceptions do have ripple effects and influence market sentiments.
A flat index is not the whole story
Another paradox emerges within the local stock market, which has been broadly flat over the past 12 months. But the index masks significant differences between sectors. Some non-commodity rand-hedge companies in the industrial sector have struggled, held back by a stronger rand. Materials, commodities and financials, by contrast, have performed well.
Cash and bonds have also supported client portfolios. Bond returns have been good over roughly the past three years, although 2026 has been tougher following two strong years. Cash is yielding around 7%, while bond yields are around 9%.
A flat equity market therefore does not necessarily mean a weak portfolio. A typical balanced fund could still be well ahead of inflation, with sector performance and stronger asset classes like cash, bonds and offshore exposure helping to offset weaker performance elsewhere.
When safe havens come under pressure
For decades, US bond yields followed a long structural decline, ultimately falling to around 1% towards the end of the Covid period. At such extreme levels, an asset class can behave differently from what historical patterns would suggest. At the same time, investors have become increasingly more aware of US fiscal challenges. This growing risk awareness – combined with valuations that were exceptionally expensive roughly five years ago – has created a difficult environment for US bond investors.
Gold and bonds have traditionally served as safe havens, making the pressure on both asset classes particularly striking. Tensions between the US and Iran would ordinarily be expected to drive demand for bonds and fuel a strong rally in gold. Yet, neither has materialised.
Valuations help explain this apparent contradiction. Gold had already rallied substantial, reaching a new peak in January. In my view, that rally had pushed valuations beyond what underlying conditions justified, leaving limited scope for further gains when geopolitical tensions escalated.
Diversification earns its place
Gold and bonds have departed from their usual patterns, while domestic equities have also struggled. These conditions demonstrate the value of advice-led diversification: when one part of a portfolio comes under pressure, others can help carry the weight. By spreading exposure across asset classes, rather than relying too heavily on any single investment, can help protect a portfolio when markets defy expectations.
By Adriaan Pask, chief investment officer at PSG Wealth