South African investors today face a complex global environment: on one hand, local markets offer high yields and attractively priced assets (after years of underperformance), and on the other, the US and global markets provide opportunities and risks that cannot be ignored.
With South Africa’s fiscal and economic trajectory diverging in some ways from that of the US, crafting a sound investment strategy requires understanding both domestic factors and international trends. In this article, we examine how to balance these considerations.
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The South African investment climate: High yields, high risks
One striking feature of South African financial markets is the high interest rate environment. To fight inflation and defend the rand, the South African Reserve Bank raised the benchmark repo rate aggressively in 2022-2023, reaching multi-year highs.
As a result:
Bonds
South African government bonds are offering yields in the range of 10% or more for 10-year maturities, and even higher for longer terms. For context, that is double or more the yield of US Treasuries of equivalent maturity. This yield gap reflects both higher inflation in SA and a risk premium. For investors, SA bonds can be enticing income-generating assets – if one believes inflation will come down and the government won’t default. With Sars’s revenue over-performance, the risk of near-term government default is low, but the debt trajectory is a concern. Remember, about 22 cents of every rand in revenue goes to interest on debt already.
Equities
The JSE (Johannesburg Stock Exchange) has a heavy weighting of commodities (mining companies) and mature industries (financials, telecoms). It also has some global plays (like Naspers/Prosus with its link to China’s Tencent). In recent years, SA equities have lagged US equities, which were boosted by big tech growth. However, going forward, SA stocks might surprise: valuations are relatively low (price-to-earnings ratios are modest), and if some domestic issues improve (e.g., easing of load shedding thanks to new energy projects, or structural reforms), there could be a re-rating.
Moreover, the commodity cycle could turn positive if global infrastructure spending (like US projects financed by its big budgets) increases demand for metals. Investors may find select opportunities on the JSE that could outpace US stocks, especially since US market valuations remain high for certain sectors. That said, one must be selective and mindful of the macro risks that can hit SA companies (currency swings, political risk, etc.).
Property and alternatives
High interest rates have pressured the South African property market (both real estate and listed property funds). Yields on listed property are high, but so are vacancies and tenant risks in a slow economy. Alternatives like infrastructure investments are becoming interesting – as the government opens up opportunities for private investment in areas like electricity generation and logistics, there may be new avenues to invest (often via debt instruments or public-private partnership deals). These can offer returns uncorrelated to the stock market, though due diligence is key.
The US and global outlook: Growth stocks, tech boom and a strong dollar?
Internationally, the picture is quite different:
Interest rates
The US equity market saw a significant rebound in 2023, led by technology giants and the buzz around AI (artificial intelligence). By 2025, US markets are near all-time highs, though subject to volatility from interest rate expectations. If the US Federal Reserve starts cutting rates (as inflation there cools to more normal levels), that could extend the US bull market – a plus for anyone invested in US stocks or indices.
However, if inflation proves sticky, the Fed might keep rates higher for longer, which could cause global market jitters. South African investors with US exposure should monitor Fed signals closely, as they influence both the value of those US assets and the rand/dollar exchange rate.
Dollar
The US dollar has been strong in recent years due to Fed rate hikes and safe-haven demand. A strong dollar typically means a weaker rand. For an SA investor holding USD assets, a strong dollar is a double boon (their investment gains in dollar terms, and each dollar is worth more rands). Moving forward, if the US fiscal situation continues to deteriorate and if the Fed eventually eases policy, the dollar could weaken somewhat.
Many analysts have been calling for the dollar to eventually peak. If that happens, it could benefit emerging market currencies like the rand, although SA-specific factors (like our current account balance and capital flows) also play a big role.
Hedging currency risk becomes important: South Africans investing abroad during a strong dollar phase might later face currency losses if the rand strengthens. Using instruments like currency futures or just maintaining a balanced mix of local and foreign assets can manage this risk.
Global diversification
Beyond the US, other markets like Europe and Asia present opportunities. Europe’s stocks are more value-oriented and could do well if global growth chugs along. Asia (especially China) has been more challenging recently due to its economic slowdown and regulatory crackdowns, but it also offers long-term growth potential and commodity demand that benefits Africa.
South African investors can access these via global mutual funds or ETFs. The key is not putting all eggs in one basket. South Africa’s economy is only ~0.5% of world GDP, so a home-biased portfolio misses out on a lot. On the flip side, global markets can be volatile, so one should venture with knowledge and possibly advice from financial experts.
Strategies for the South African investor
Given this landscape, here are some strategies and considerations for balancing between SA and US/global investments:
Maintain a core global portfolio
It’s generally prudent to have a healthy portion of your investments in global assets (developed and emerging markets outside SA). This hedges against local risks such as political instability, a worsening debt situation, or a collapse in the rand.
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Many South African investors aim for at least 30-50% offshore in their portfolios, depending on risk tolerance and regulations (pension funds have specific offshore limits, for example). US stocks, being a large chunk of global indices, will naturally be a big part of any global fund. Over the long term, this has served well as US markets delivered strong returns.
However, be selective now – after a big rally, consider funds that are globally diversified rather than 100% US tech unless you have high conviction there. Markets move in cycles, and what outperformed in the last decade (US megacaps) might not lead in the next.
Take advantage of local high yields
The beauty of high local interest rates is that low-risk instruments like government bonds or even bank fixed deposits are paying substantial real returns (above inflation). An investor nearing retirement, for instance, might lock in some of these rates to secure income. Even younger investors might allocate a portion to SA bonds if they believe inflation will moderate to, say, 5% in a couple of years – an 11% yield is very attractive in that scenario (a real yield of 6%).
Also, buying SA bonds when sentiment is poor can generate capital gains if conditions improve (for example, if down the line SA’s credit rating outlook improves, or global risk appetite for emerging markets returns, those bonds could rally). It’s a contrarian play – right now, many foreign investors are underweight SA bonds due to fear. That fear is your friend if you judge it oversold.
Equities barbell – Defensive local, growth global
One approach is a barbell strategy: hold some defensive South African stocks that pay good dividends and can endure tough local conditions (e.g., a well-managed bank or telecom that isn’t overly leveraged and can even benefit if competitors falter), and complement that with high-growth international stocks (like a slice of US tech or healthcare innovators).
The local defensives provide income and stability, while the global growth side offers upside and exposure to cutting-edge industries. This balances currency effects, too: local stocks often benefit from a weaker rand (many SA companies have foreign earnings or pricing power domestically when imports are costly), whereas the value of global stocks in rand terms goes up when the rand weakens.
So in a scenario where SA hits a bump and rand slides, both sides of this barbell could hold up. If SA does extremely well (strong rand, local economy surprise growth), your local stocks will soar and your offshore might underperform relatively – but that’s a “good problem” scenario as overall you’d still likely gain.
Keep an eye on policy changes
Policy can shift landscapes. If South Africa implements a big reform (e.g., finally solving much of the energy crisis by allowing massive private generation, or enacting a pro-growth economic reform package), that could be a catalyst for SA assets to outperform.
Conversely, if the government were to announce draconian measures (like an unexpected wealth tax or a larger-than-expected Vat hike without compensation to the poor), it could dent local markets.
Similarly, in the US, watch for developments like tax law changes (which could affect corporate profits) or regulatory changes for tech (if any trust-busting happens, for example). Staying informed through reliable business news (Moneyweb, Fin24, and BusinessTech) is vital. These sources often provide analysis on what a policy development means for investors. Use that insight to rebalance or adjust your strategy proactively.
Diversify within South Africa too
Don’t treat SA assets as one monolithic block. There’s a big difference between, say, investing in a South African startup versus a government bond versus a listed company with international earnings. Diversification shouldn’t stop at “SA vs overseas”.
Within your South African portion, spread across asset classes – a mix of equities, bonds, property, maybe even a bit of gold or commodity exposure (since SA is a commodity economy, having some gold can also hedge local risk as gold often rises when the rand falls or when global uncertainty spikes).
In crafting your investment plan, remember that risk management is as important as return chasing. South Africa’s higher returns come with higher volatility. US assets can feel more stable, but then you carry currency risk and valuation risk.
An oft-recommended approach is phasing investments over time (rand-cost averaging for offshore investments, for example, to avoid timing the worst exchange rate). And align with your financial goals: if you plan to spend your retirement in South Africa, you will ultimately need rands, so too much currency exposure near the end can backfire if the rand suddenly strengthens. Conversely, if you have aspirations to relocate or spend significant time abroad, building up assets in hard currency is prudent.
Outlook: Cautious optimism
Looking ahead, one can be cautiously optimistic. South Africa’s recent tax windfall and the reforms being talked about (like infrastructure investment drives and Operation Vulindlela’s efforts to cut red tape) provide hope that the growth environment might slowly improve. If South Africa can get onto a higher growth path of even 2-3% (versus sub-1% recently), that would be transformative for investment returns domestically.
On the global side, the worst of the pandemic and inflation shocks seem to be passing, and while new challenges will arise, the world economy is still growing. The US is dynamic and finds ways to reinvent sectors (AI being the latest), so exposure there remains valuable.
The key for the investor is to stay agile. Don’t get swayed by doom and gloom that says, “Keep everything overseas; SA is hopeless.” That’s often when SA assets are cheapest and set to rebound. Likewise, don’t be overconfident and put all your money in one place. Balance and vigilance are your allies.
