Discovery Invest 2025 Market Outlook: Business unusual

12 February 2025, Johannesburg – The Discovery Invest 2025 Market Outlook highlights how a recovering global economy and transformative trends such as artificial intelligence (AI) are shaping investment opportunities in unusual market conditions. With global uncertainties, such as shifts in US trade and fiscal policies under the Trump administration, the need for a measured, long-term investment strategy has never been greater.

Key highlights of the Discovery Invest 2025 Market Outlook:

• Global recovery: Above-trend growth in the US, stabilisation in China, and transformative global themes such as AI reshaping markets.
• Trump impact: Trade and fiscal policy shifts under the Trump administration could influence global markets, especially emerging economies.
• Emerging markets: Asia ex-China identified as the “AI factory to the world” with significant potential in undervalued regions like Saudi Arabia.
• Ignoring the noise: Despite ongoing market fluctuations and geopolitical shifts, investors are urged to remain focused on long-term fundamentals rather than reacting to short-term uncertainty.

The global economy is witnessing stabilisation in key regions with above-trend growth in the United States (US) and a turning point in China’s recovery. The transformative impact of AI is also reshaping industries. BlackRock, one of the world’s largest asset managers, sees broadening opportunities in the US beyond the tech giants. Ninety One, a global asset manager rooted in South Africa, highlights emerging markets as pivotal areas for growth in 2025. Locally, South Africa’s virtuous economic cycle adds more promise.

“We are navigating an atypical global environment,” notes Discovery Invest CEO Kenny Rabson. “Old investment playbooks need renewal as economies transform, new leaders emerge and long-term trajectories shift.”

Despite fears that monetary tightening would stifle growth, global markets rallied in 2024, with US equities leading the charge. The iShares Core S&P 500 ETF delivered a remarkable 25% return, driven by mega-cap tech stocks like Apple and Nvidia. By comparison, non-US equities, tracked by the iShares MSCI ACWI ex US ETF, achieved a modest 5.2% return. The dominance of US equities, now accounting for nearly 75% of the MSCI World Index, reflects investor enthusiasm for transformative themes such as AI. The ‘Magnificent 7’ tech companies – delivering compound revenue growth of 16% annually over a decade – highlight the pace of economic transformation. Yet, BlackRock remains cautiously optimistic, recognising risks such as inflation, high valuations and global policy shifts that could impact corporate earnings and borrowing costs.

Ninety One offers a complementary view, pointing to the risks of overconcentration in US large-cap equities. It sees compelling opportunities in value and small-cap stocks across the US, Europe and the UK, where valuations remain historically low. Sectors like European financials and decarbonisation-focused companies, such as battery manufacturers, are key areas of structural growth.

Emerging markets

2025 may prove pivotal for emerging markets (EM) and South Africa. “There are many emerging markets that look undervalued, and I agree with Ninety One that there is an abundance of bottom opportunities. However, against a mixed backdrop for emerging markets, for instance, due to vulnerabilities from President Donald Trump’s trade policy changes, country-specific granularity is key,” says Rabson.

While markets such as Mexico – which could face challenges from proposed US tariffs and protectionist trade policies under the Trump administration – may be adversely affected, country-specific dynamics will play a crucial role in determining opportunities and risks.

South Africa’s momentum under the Government of National Unity (GNU) has been encouraging. The country enjoyed nearly 10 months of uninterrupted power supply as renewable energy capacity surged to 20% of the energy mix in just two years. While loadshedding briefly re-emerged, the trajectory is still positive. “Investors must remain aware of short-term disruptions but focus on the bigger picture: An economy that is stabilising, private-public partnerships are working, inflation moderating, and further interest rate cuts on the horizon,” says Rabson.

China may have turned a corner and is central to Ninety One’s view of 2025 being a year of global recovery, but it sits in the firing line of Trump’s policies and negotiation strategy. However, as Ninety One says: “A mitigating factor for China is that it has rapidly been diversifying its export markets. The US share of China’s exports has fallen from 20% in 2012 to just 13% in 2023.” In late 2024, China took urgent steps to stabilise its economy and property market while its corporates improved operations and increased shareholder returns. “The weak top-down story is accompanied by a very strong bottom-up stock-picking opportunity.”

Ninety One describes Asia ex-China as the “AI factory to the world”, as it supplies the hardware to run AI software. “Investors can, therefore, buy the AI revolution in Asia at a fraction of the multiples on which it trades in the US.”

AI holds the potential to improve productivity and accelerate the pace at which ideas are generated, spurring innovation and fundamentally reshaping industries and economies. However, the path to realising AI’s transformative promise remains uncertain, as intensified competition, exemplified by China’s emergence of a new AI player DeepSeek, echoes the fierce rivalry of the 1950s space race, where technological innovation defined global leadership.

Ignoring the noise: Why long-term focus matters

Despite global uncertainties, including political shifts in the US, investor sentiment volatility and market adjustments, those who maintain long-term, well-diversified strategies tend to fare best. Rabson cautions against reacting to short-term events, noting that South African investors, in particular, have been overly conservative, storing wealth in cash and missing out on market rallies.

“While negative headlines may paint a picture of crisis, the reality is that markets have remained resilient over time,” Rabson advises. “History shows that disciplined investors who maintain a well-diversified portfolio benefit most in the long run.”

The Discovery Invest 2025 Market Outlook highlights the need for active management and global expertise to navigate this new economic era. By embracing dynamic, diversified strategies, investors can seize attractive opportunities in a world undergoing transformative change.

Rabson concludes: “Barring unforeseen events, the global economy is poised for growth. We encourage investors to spend time in the markets to achieve their long-term goals.”

ENDS

See attached to read the full 2025 Discovery Invest outlook.