There is no shortage of reasons for investors to feel uneasy at the moment. Geopolitical tensions between the United States and the Middle East continue to make headlines, while oil prices spike in parallel. Locally, the economy remains trapped in a low-growth environment, while unemployment and the escalating cost of living continue to weigh heavily on South African households. It is, therefore, hardly surprising that the investor sentiment has turned increasingly pessimistic.
Always look at the evidence
Periods of uncertainty make it even more important to distinguish between how the economy feels and what the underlying data is actually telling us.
Globally, economic growth has undoubtedly slowed, but the available evidence still falls short of pointing towards an imminent recession. Purchasing managers’ indices continue to indicate expansion across much of the global economy, albeit unevenly: some regions remain under pressure, while others have proved more resilient than expected.
South Africa tells a similar story. Growth remains modest and the recovery is fragile, but certain indicators are moving in the right direction. For example, car sales and credit extension have begun to tick up. South Africa’s private sector returned to marginal growth in June, with the S&P Global South Africa Purchasing Managers’ Index (PMI) rising to 50.5 points from 49.6 in May. Disposable income has continued to increase, and household debt levels remain relatively contained. While this is far from a booming economy, it does suggest activity is continuing to inch forward, however slowly.
Sentiment and economic reality are not always perfectly aligned
For many South Africans, the economy is experienced through the lens of job security and day-to-day financial pressures, and these experiences are entirely valid – particularly when formal employment remains under strain. At the same time, households can feel financially stretched even as aggregate indicators point to a degree of resilience. The two are not mutually exclusive.
And nowhere is this disconnect between sentiment and the data more apparent than in the labour market. Currently, employment remains one of the constraints of South Africa’s economic picture and goes a long way towards explaining why confidence remains subdued. Without stronger job creation, it’s difficult for improvements seen elsewhere in the economy to be felt in how the majority of the population experiences daily life. Inflation provides yet another example of why investors should avoid drawing conclusions too quickly, with recent movements in oil prices highlighting how quickly the outlook can change. While lower energy prices initially offered some relief, renewed geopolitical tensions placed upward pressure on prices once again. At the same time, consumer prices tend to adjust more slowly, meaning inflation can remain elevated even after some input costs begin to ease.
Emotionally charged investment decisions rarely bear fruit
In an environment like this, it becomes tempting to react to each new headline, yet investment decisions made on emotion rarely produce consistent or desirable long-term outcomes.
Markets are constantly repricing future expectations, often long before the broader economy begins to improve or deteriorate. In contrast, investors often respond to the latest development as though it represents a permanent change in direction. The reality is generally far more nuanced. So, this is neither an argument for optimism nor pessimism – but rather, discipline.
Uncertainty should never be confused with deterioration, just as resilience should not be mistaken for prosperity. The role of investors is not to ignore risks or to assume conditions are better than they are, but rather, to separate emotion from evidence, remain focused on the underlying data, and make decisions based on long-term fundamentals rather than short-term sentiment.
By Adriaan Pask, Chief Investment Officer at PSG Wealth