Global Market and Economic Summary
Global equities ended December on a positive note, capping a strong year for both Developed Markets (DM) and Emerging Markets (EM), despite a backdrop of unusually high uncertainty. The rally was broad- based, although indices with heavy Technology and Resource exposure were the standout performers in 2025. In the U.S., equities were essentially flat in December but still recorded a third consecutive year of double-digit gains, delivering a total return of 17.9% for the calendar year. Within EM, South Korea (+9.8%) and Taiwan (+4.7%) outperformed in December, supported by robust demand for semiconductors linked to artificial intelligence (AI). Global bonds underperformed most other major asset classes both in December and for the year as a whole. The global aggregate bond index was particularly weighed down by index heavyweights Japan, Germany and France, where 10-year government yields rose across the board. In the U.S., Treasury returns were weak in December as yields climbed across the curve, though over the full year, U.S. bonds fared relatively well, with the 10-year yield declining in 2025, supporting higher Treasury prices.
Turning to central bank actions, as expected, the Federal Reserve (Fed) cut the benchmark interest rate by 0.25% to 3.50%-3.75%, marking the third reduction this year. The Fed cited expectations of stronger economic growth in 2026 and a moderation in inflation as key factors supporting the rate cut. Meanwhile, the European Central Bank (ECB) held its main refinancing rate unchanged at 2.15% and the deposit facility rate at 2.0% for a fourth consecutive meeting in December, maintaining a steady policy stance amid mixed economic signals. The Bank of England (BoE) lowered its policy rate by 0.25% to 3.75% in a narrow 5–4 vote, reflecting policymakers’ attention to persistent economic slack and easing inflation pressures. In contrast, the Bank of Japan (BoJ) raised its policy rate by 0.25% to 0.75% in December, the highest level in roughly 30 years. In other economic news, China showed continued signs of slowing economic growth, mainly due to weak domestic demand evident in both property investment and consumer spending. In the U.S., labour market data pointed to slower employment growth, with revised figures indicating modest job creation and a slight rise in unemployment – a classic indicator of cooling labour demand. For the Fed, whose dual mandate is to control inflation while supporting employment, these trends could justify further monetary easing. However, as Chair Powell highlighted, the recent slowdown in job growth may reflect declining net immigration rather than underlying economic weakness.
South African Market Update
South African assets had yet another strong month, supported by surging precious metal prices, structural reforms, improving inflation, better fiscal discipline, political stability and a more reliable power and infrastructure outlook. South African equities (+4.6%) posted positive performance over the month, pushing the performance for the year to +42.4%, the best annual return since 2005. The market displayed broad strength over the month, as Resources (+5.7%), Financials (+7.7%) and Industrials (+1.9%) all posted gains. Specifically, Banks and Precious Metal Miners were the standout performers over the month, with Impala Platinum (+22.2%), Valterra Platinum (+18.4%), ABSA (+14.9%) and Firstrand (+11.4%) being some of the top performers. In contrast, the Retail sector continued to face challenges, with the sector being dragged down by Mr Price (-15.2%), Clicks (-3.1%) and Shoprite (-1.3%). The Property sector (+0.1%) ended the month flat, ending the year +30.6% higher.
South African bonds (+2.7%) delivered strong returns in December, subsequently delivering the best calendar-year return (+24.2%) since 1999. The strong bond market was supported by the Rand, which recorded its first annual gain against the U.S. dollar in six years. Key factors driving this performance included improved prospects for fiscal consolidation, the reduction of the inflation target to 3% and a favourable global backdrop, all of which contributed to pushing the local yields lower across all maturities.