How Sanlam Private Wealth invests money for rich South Africans

Sanlam Private Wealth expects South Africa’s financial markets’ strong performance to continue into 2025, while the US stock market appears to be overvalued and is set for a difficult year. 

However, the asset management unit said there are still attractive opportunities in the US, but these will require intensive research on specific companies rather than the general market outperformance seen in recent years. 

David Lerche, Sanlam Private Wealth’s chief investment officer, said markets will present a dichotomy in 2025. 

On the positive side, the US economy remains strong and inflation appears to be under control, with interest rates set to decline further and boost economic activity. 

On the negative side, we have fading impetus from US stimulus, the lagged effects of restrictive monetary policy, the likely imposition of new tariffs, and weak domestic demand in both Europe and China.

Weak demand in Europe and China, South Africa’s two largest trading partners, pose headwinds for some export-focused companies on the JSE. 

Overall, Lerche expects real gross domestic product (GDP) growth in the developed world to be around 1.6% in 2025, which is in line with 2024, with the US at just over 2% and Europe at around 1%. 

Unless we see major fresh stimulus, Chinese real GDP will likely slow further to around 4%. South Africa should see an encouraging lift to an estimated 2.2%.

Simultaneously, inflation should trend slightly lower in most regions in 2025, with the US likely to be around 2.3%, Europe close to 2% and China barely above zero. 

In South Africa, we expect inflation to be around 4.3%, marginally below the midpoint of the  Reserve Bank’s target.

Lerche said that the link between these assumptions and asset performance is tenuous as markets appear to have already baked such views into prices. 

Rather, markets are more likely to be moved by changes to the consensus assumptions. Our US numbers are slightly above consensus, and Lerche sees scope for a mild positive surprise. 

If the Chinese government delivers consumer-focused stimulus measures, there is an upside risk to markets. This would have second-round benefits for JSE-listed commodity exporters. 

A key factor to watch out for in both the US and Europe will be the extent of immigration policy tightening and the impact of this on inflation.

Lerche and his team at Sanlam Private Wealth think the US stock market is clearly expensive relative to history, trading at around 22 times expected 2025 earnings compared to an average of 16.5 times. 

“We are seeing signs of ‘animal spirits’ in the US market as investors appear bullish on both the broader US economy and the continued possibilities for artificial intelligence (AI),” Lerche said.  

This environment resembles the late 1990s when we also saw a soft landing and a lot of hype around technology companies.

When markets become expensive, there are logical arguments for the trend to continue. The US appears well-placed to continue its dominance of global markets, but Lerche thinks this appears to have already been baked into prices. 

Recall that around 2000, the consensus was that the US was untouchable, yet US markets struggled over the first decade of this century.

The US has apparent advantages over Europe and China in terms of innovation, demographics and its economic system and capital markets. 

The one area in which the US lags both China and Europe is that of social cohesion. Over the short term, we would expect the US market to continue to outperform Europe, despite its stretched valuation.

South Africa’s growing momentum should accelerate in 2025, which should translate into enhanced economic growth and returns for investors. 

The flywheel of lower inflation, lower interest rates, better electricity availability, and the Government of National Unity (GNU) drive confidence for both businesses and consumers. 

Assuming no major external shocks, this self-reinforcing cycle should be positive for our local stock and bond markets and the local currency in 2025.

It is always interesting to understand the broader macro environment, and this obviously plays an important role in asset allocation. However, it is not the most significant factor. 

When it comes to the selection of the individual assets in our client portfolios focus most of Lerche and his team’s attention is on bottom-up research to identify great businesses with sustainable moats at attractive prices.