QUARTERLY MARKET INSIGHTS | Q2 2025

At MitonOptimal we take asset allocation (AA) very seriously, taking into consideration both Strategic AA (3-7 years) and Tactical AA within the various asset classes. This quarterly piece provides insight into our short term tactical calls on a 12-month view (reviewed quarterly) and as such may diverge from our long term strategic AA views. We review our strategic AA bi-annually as we believe this is prudent practice, in a world dominated by debt de-leveraging, central bank and political interference.

Source: Morningstar in ZAR

SA EQUITY

NEUTRAL – OUTPERFORMED 

South African equities delivered a robust second-quarter performance, extending the rally that began in Q1. Gains were driven by a combination of macroeconomic improvements and favourable sector rotation, particularly into financials and resource-linked counters. Financial stocks benefited significantly from May’s 25bps rate cut by the SARB, which reinforced expectations of an accommodative monetary stance. This coincided with a continued deceleration in inflation.

The Government of National Unity (GNU) continued to provide political stability, and more than 180 consecutive days without load-shedding bolstered business and consumer confidence. Large-cap counters such as Naspers and Prosus delivered strong performance, riding the tailwinds from the global tech rally while providing a domestic hedge. Meanwhile, cyclical stocks and gold miners also posted strong gains, driven by the risk-off global environment and surging gold prices.

Although our portfolios maintained a neutral stance in SA equity, this allowed us to benefit from the upside without assuming excessive domestic-specific risk. Our strategy to focus on quality counters with offshore earnings exposure, defensive balance sheets, and strong free cash flow proved effective.

SA LISTED PROPERTY

NEUTRAL – OUTPERFORMED

South African listed property staged an impressive comeback in Q2, benefiting from a more dovish interest rate environment and growing investor confidence. The 25bps rate cut in May acted as a catalyst, reducing financing costs and lifting sentiment across the sector. Notably, REITs with exposure to logistics, industrial warehousing, and retail distribution centres performed well as they are typically more interest-rate sensitive and have healthier fundamentals.

The prolonged absence of loadshedding enabled better operating conditions, especially for retail-focused property counters. Office space remains under structural pressure, but the broader sector benefited from improved foot traffic in malls and higher rent collection rates. However, valuations remain below pre-pandemic levels, offering a degree of upside should macro conditions continue improving.

Although our portfolios were neutrally positioned, the quality-focused tilt and selective exposure to income-generating REITs with strong balance sheets contributed to the outperformance.

SA FIXED INTEREST

UNDERWEIGHT – NEUTRAL PERFORMANCE

Domestic bonds delivered solid returns during the quarter, supported by a favourable inflation trajectory and renewed foreign interest in South African debt. The yield curve flattened slightly, particularly on the belly of the curve, where the R2035 and R2040 saw notable demand from both local and foreign investors. The SARB’s decision to cut interest rates in May sparked a rally in the 5- to 10-year segment of the curve.

However, fiscal risks lingered beneath the surface. Concerns around rising relief expenditure, slow SOE reform, and the looming risk of populist budget pressures. Nevertheless, the outperformance of the ALBI was notable, even if temporary, given the macro headwinds.

Our portfolios remained underweight, anticipating that longer-term fiscal sustainability challenges would cap gains. We still see more risk than the market might be accounting for and would prefer to hold equities with less correlation to South African outcomes.

SA CASH

OVERWEIGHT – UNDERPERFORMED

While SA cash offered positive nominal returns, it significantly underperformed other domestic asset classes. The rate cut in May reduced the appeal of cash as a defensive holding. At the same time, risk assets such as equities and property delivered compelling returns, amplifying the opportunity cost of holding excess liquidity.

Our tactical overweight in SA cash was intended to provide optionality and buffer volatility, particularly as global markets remained fragile through April and early May. However, the broad-based rally in risk assets left cash trailing. Despite this, the liquidity and defensive characteristics still played a key role in our portfolio construction, especially for mandates with lower risk tolerance.

GLOBAL EQUITIES

OVERWEIGHT –  OUTPERFORMED

Global equity markets experienced a strong rebound in Q2 after a volatile start in April due to renewed trade tensions and fears of an inflationary spike. The S&P 500 and MSCI World Index both advanced, with the US market leading developed peers to new all-time highs in June. Key drivers included cooling inflation, dovish central bank guidance, and an AI-driven rally in mega-cap tech names. The Nasdaq and S&P 500 rose on the back of strong earnings from companies such as Apple and Nvidia, as investor demand for growth stocks surged again.

Emerging markets also contributed positively. Chinese equities gained ground following new fiscal stimulus targeting infrastructure, while Indian markets continued to attract capital flows amid election-related optimism. Commodity-importing EMs like India and Brazil performed particularly well in the risk-on rally.

Our overweight allocation to global equities – especially in US and EM growth themes – was well rewarded. Diversification across geographies and styles, with a tilt towards quality growth and selected EM value plays, helped capture both alpha and downside protection. Currency effects also worked in our favour, as the Rand depreciated slightly against the USD over the quarter.

GLOBAL PROPERTY

UNDERWEIGHT – UNDERPERFORMED

Global listed property lagged the broader equity market, failing to recover in line with tech and cyclicals. REITs underperformed despite a generally positive tone in equity markets. Structural pressures persisted in office and retail segments, particularly in the US and Europe. Although some relief came from rate stabilization, it was not enough to trigger a re-rating.

Subsectors like logistics and data infrastructure remained relatively more resilient, yet even these were outshone by broader equity indices. Currency weakness offset some of the nominal losses for local investors, but on a relative basis, this asset class underdelivered.

Given the lingering structural headwinds and valuation concerns, our underweight stance was appropriate and avoided unnecessary drag on overall performance.

GLOBAL FIXED INTEREST

UNDERWEIGHT – UNDERPERFORMED

Global bonds posted modest returns as yields oscillated with shifting macro narratives. Although central banks like the Fed and ECB struck more accommodative tones, markets remained wary of sticky wage inflation and renewed tariff-related price pressures. US Treasuries and German Bunds found support in June as equity markets reached stretched valuations, prompting a mild rotation into fixed income.

However, with inflation not fully under control and fiscal deficits growing across major developed markets, the long end of the yield curve remained volatile. Our underweight position in global bonds protected against this duration risk.

We remain skeptical of long-term returns in global fixed income and continue to view it as a risk mitigator rather than a return enhancer.

GLOBAL CASH

UNDERWEIGHT – UNDERPERFORMED

Global cash returns disappointed as the relative attractiveness of high-yielding USD money market instruments faded. The USD softened slightly over the quarter, eroding returns for South African investors. In addition, flows into equities and gold reduced interest in cash as a safe haven.

Given the more bullish backdrop for risk assets, our underweight allocation to global cash proved beneficial, freeing up capital for better opportunities in global equities and selective EM exposure.

• Overweight / Neutral / Underweight indicates the MitonOptimal asset allocation views
• Outperformed / Neutral / Underperformed indicates the asset class performance over the quarter

Source of all data: Morningstar.  Unless otherwise stated all local data is in ZAR and all offshore data is in USD.

DOWNLOAD: QUARTERLY MARKET INSIGHTS: Q2 2025

Jacques de Kock

Quantitative Analyst & Portfolio Manager

The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness. MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider Licence No. 28160, regulated by the Financial Sector Conduct Authority (FSCA) – Registration No. 2005/032750/07.MitonOptimal Portfolio Management (Pty) Limited is an Authorised Financial Services Provider Licence No. 734, regulated by the FSCA – Registration No. 2000/000717/07.