So given the strong run we have had in Global equity markets heading into September, concerns over labour market weakness and uncertainty over the U.S. Fed’s views for the next 6 months, there was every reason for the September curse to befall the markets again this year.

As it happened, thankfully, the markets beat the curse. September delivered another stellar month of returns for global equity markets, with the S&P 500 delivering 3.53% for the month.

Global equity markets, in general, and U.S. equities, specifically, are being driven by several tailwinds:

• Lower U.S. interest rates
• Healthy economic growth is driving company earnings upgrades
• Rapid expansion of AI and enormous amounts of investment capital commitments

Don’t Fight the Fed

With the labour market showing signs of weakening, exuberated by a massive revision in jobs numbers over the last 12 months, with the Bureau of Labor Statistics suggesting they had overstated jobs numbers by 911k jobs.

Armed with this data, investors focus shifted to the September Fed meeting with expectations of the first rate cut since December last year. Spicing up the September meeting was the introduction of Stephen Mirran, the dovish Trump acolyte. As expected, the Fed cut 25bps, with Mirran voting for a 50bps cut. With a less hawkish Fed and pressure from President Trump to cut rates further, the market is backing two more rate cuts this year, suggesting the U.S. exits 2025 with a Fed rate of 3.50-3.75%. The Fed’s dot plot shows a very wide range, paying tribute to the wide disparity of views from the Fed members.

On the tariff front, while inflation is no longer moving toward the Fed’s 2% target, inflation continues to come in-line with expectations. As it stands currently, it seems as if only one third of the tariff costs on U.S. imports is being passed onto consumers. Inflation remains a key focal point and a potential headwind to further rate cuts.

Don’t Bet Against the U.S. Consumer

From an economic growth perspective, the U.S. economy is showing no signs of slowing. As discussed in last month’s WFTT, the Citi Group Economic surprise remains solidly in positive territory. Backing up the strong economic growth momentum is the 3Q25 Atlantic Fed’s GDPNow forecast, currently seeing 3Q GDP growth at an impressive 3.8%.

Distilling this down to a company level, with 3Q reporting season only a week away, the strong momentum in the economy is coming through in earnings estimates. For the first time since Q4 2021, Wall Street analysts have increased their aggregate S&P 500 earnings estimate during a calendar quarter, as the FactSet chart below illustrates.

As it stands now, analysts are expecting 3Q25 earnings to increase 8% Y/Y; this will likely turn out to be double digits by the end of the reporting season. Most importantly we are seeing estimates for FY25 and FY26 being walked up.

Historic data informs us, it is unlikely we see a big market sell off when earnings estimates are moving higher.

AI Train Keeps Rolling

The AI theme keeps leading the market up – September was no different. The Mag 7 contributed 68% of the S&P500’s 3.5% increase in September.

The capital expenditure into AI infrastructure continues to blow away anything we have seen before. Currently, the big 5 hyperscalers are set to spend $422bln on infrastructure build out in 2025 alone. Backlogs on the companies that supply these facilities are going gangbusters. Oracle saw its bookings increase by $332bln in 1Q25. The biggest bookings number ever seen.

Liza takes a detailed look into the AI theme in this month’s edition. The takeaway is that we are still in the early innings with plenty of runway to go. The real revenue opportunities to software service companies may take a little longer to be realised. Nonetheless, AI is real and continues to offer lots of potential.

Gold Continues to Reign Supreme – How Much Higher Can it Go?

Locally, we continue to muddle through. The headlines have all focused on politics, the Madlanga commission, Helen Zille’s Joburg mayoral campaign, the Tembisa Hospital corruption scandal, and Malema’s recent firearm conviction.

It seems that the only sector working in the SA equity markets currently is the resource sector which continues to benefit from the meteoric rise in precious metal prices. Anda investigates the potential for further upside and whether it’s worth getting involved in precious metals at current levels. The rest of the sectors remain very good value; levels that have historically delivered attractive returns, but we lack a catalyst in the short term.

Local section

• • By the Numbers
  • State of Play in SA Equities

Markets posted strong gains in September, with the S&P 500 (+3.5%) and Nasdaq (+5.6%) both extending their record-setting run and continuing to outperform European markets – FTSE (+1.8%), EU 600 (+1.5%) and DAX (-0.1%). U.S. gains were buoyed by the Fed’s 25bp interest rate cut, a resilient economy, and optimism on AI growth.

Warner Bros Discovery (+67.8%) surged after a report that Paramount Skydance is preparing a majority cash bid for the entertainment giant. AppLovin (+50.1%) rallied as it prepares to launch a self-serve advertising tool; leading to analysts raising estimates. Memory makers also advanced as signs of recovery in global chip demand lifted Western Digital (+49.4%), Seagate (+41.0%) and Micron (+40.6%). On the downside, with Carmax (-26.9%) fell after results fell short of expectations, FactSet (-23.3%) issued cautious guidance, and Kenvue (-21.6%) dropped after the Trump administration warned that the painkiller Tylenol might be linked to autism. Constellation Brands (-16.8%) also dipped after management revised down its outlook, citing weak consumer demand and slowing beer sales. Lululemon (-12.0%) also lowered guidance amid weakness in the U.S. and tariff headwinds.

In the UK and Europe, miners and defence names led the advance. Fresnillo (+32.0%), Antofagasta (+28.3%) and Anglo American (+22.3%) benefited from firmer commodity prices, while Babcock (+30.9%) and RENK (+40.3%) rallied on strong defence sentiment. ASML (+30.1%) rallied on AI optimism and increased semiconductor-investment expectations. on the other hand, consumer names lagged, with Diageo (-13.3%) under pressure amid tariff negotiations on whiskey and spirits, while Ocado (-33.2%) slumped reflecting market angst at the pace of openings for its retail partners.

Hong Kong equities rebounded, led by large-cap technology platforms. Alibaba (+53.0%) and Baidu (+49.0%) both surged on AI investment updates, as well as SMIC (+31.1%) who gained on continued demand for domestic chip production. On the other hand, Pop Mart (-17.2%) declined after resale prices of Labubu toys disappointed.

The excitement around AI today echoes past transformative moments – from the rise of railroads in the 1800s, to electrification in the early 20th century, or the internet in the 1990s. Each of those waves began with intense enthusiasm and a handful of pioneering companies leading the charge. Over time, these technologies spread through the broader economy and reshaped markets.

We are starting to see the first signs of a similar transition. Many industry leaders believe we are still in the early stages of what could be a 20-year tech cycle. If that’s correct, we’re only three years into what could be one of the next transformative investment themes.

Clear Signs of Early-Stage Adoption

Although AI remains in the early stages of widespread adoption, several key indicators suggest momentum is building as more and more AI-related deals are announced and additional capital is being invested.

Surge in Megadeals

We’re seeing a significant increase in the number and size of AI-related deals – many of them are focused on securing cloud computing capacity or building next-generation data centers.

Major players are locking in resources now to prepare for what they expect will be a dramatic rise in demand over the next few years.

Hyperscalers Capex Ramping Up

Capital expenditure (capex) from hyperscalers – large tech companies who operate cloud infrastructure – has also surged as they race to build capacity for the next wave of AI demand.

These capex estimates are also continuously being revised higher. As the year has progressed, capex estimates for the top five hyperscalers has increased by over 40% for the group, as demand for AI infrastructure has far outpaced earlier expectations for 2025.

Another positive indicator we see, are order backlogs for these major cloud providers that are growing faster than their capex – a strong forward-looking signal for AI demand.

Companies are racing to secure capacity across multiple cloud providers; creating a “rising tide lifts all boats” effect that benefits the entire hyperscaler ecosystem.

Consulting Services Picking Up

Another early sign of adoption is the growing demand for AI consulting. As many enterprises are still figuring out how best to integrate AI into their operations, consulting services play a key role in helping them explore real-life application and build custom strategies. This phase typically precedes broad adoption of AI software and applications, which we expect will accelerate in the next couple of years.

When Will We See it in Earnings?

While investment in AI is growing rapidly, AI-related revenue still only represents a low single-digit percentage of total revenue. This can be expected as companies are still building the foundation needed to start generating recurring revenue.

Looking ahead, 2026 is expected to mark the beginning of broader enterprise AI adoption, as companies move from experiment to deployment. 2027 could be an inflection point, with the rise of agentic AI – AI systems that can act autonomously, rather than just respond to prompts or inputs.

As these technologies become more robust and integrated into business models, we expect to see clearer investment returns.

Assessing AI Valuations

With AI-related stocks sitting at or near record highs, concerns are being raised about high valuations and whether we’re in an AI bubble.

Industry analysts note that while some AI stocks trade at stretched levels, the sector overall is not exhibiting the broad overvaluation seen in the past cycles like the dot-com era. This suggests that – beyond a few speculative names – much of the current pricing reflects genuine growth potential rather than speculative exuberance.

As investment analysts, our role is to identify the companies with sustained earnings growth just justifies their valuations.

In Summary

We remain optimistic about the AI opportunity. The recent surge in investment, deal activity, and infrastructure build-out, all point to an exciting phase ahead. That said, the path to meaningful revenue will take time, and we believe it’s important to stay disciplined – balancing optimism about the future with realism about where we are in the adoption cycle.

As always, we are actively monitoring developments and will continue to adjust our positioning to ensure your portfolio is well-aligned with both opportunity and risk.

The JSE ALSI recorded its strongest month of the year in September, touching a fresh record above 105,000 points and closing 6.0% higher. Gains were powered by a sharp rally in precious metals, which lifted resources (+27.4%). Industrials (+1.3%) also advanced modestly, while financials (-2.7%), property (-1.2%), and retailers (-3.0%) lagged as broader SA Inc. sentiment remained cautious.

Resources dominated market performance, buoyed by a powerful surge in precious metals miners. Valterra Platinum (+52.9%), Sibanye (+47.8%), Northam (+42.4%) and Impala (+38.3%) all rallied on firmer PGM prices. Valterra’s performance was further underpinned by its completed demerger from Anglo American, while Implats surprised the market with its first dividend payout in years. Sibanye noted improved profitability supported by operational stability and tighter cost control.

Gold counters extended their rally, with DRDGOLD (+50.6%) leading gains alongside Pan African (+35.9%), Harmony (+33.9%), Gold Fields (+25.8%) and AngloGold (+23.2%), as bullion prices hit record highs above US$3,800/oz. On the downside, Sappi (–20.4%) was the sector’s weakest name amid ongoing pressure in global paper and pulp markets, while Sasol (–9.9%) and Exxaro (–6.5%) also retreated on softer energy prices.

Industrials delivered mixed performance. Prosus (+10.8%) and Naspers (+7.7%) advanced as Tencent rebounded on stronger results in China, while Karooooo (+10.8%) gained on continued subscriber growth. Metair (+7.5%) and PPC (+6.1%) added further support. By contrast, Bidvest (–10.6%) fell after releasing softer-than-expected FY25 results, while Super Group (–11.4%) and Wilson Bayly Holmes (–11.8%) weakened on disappointing earnings prints. Sun International (–13.6%) gave back gains despite doubling 1H25 profit, and KAP (–20.3%) was the sector laggard after reporting a 47% drop in HEPS.

Financials were subdued overall. FirstRand (+4.4%), Ninety One PLC (+3.9%) and Coronation (+2.1%) managed modest gains on stable earnings and firm inflows. However, insurers weighed on the sector as Sanlam (–8.3%), Discovery (–9.2%) and Santam (–13.7%) all declined despite decent results. Nutun (–15.3%) and Alexander Forbes (–8.6%) also came under pressure.

Retailers remained soft, reflecting continued strain in consumer spending. Motus (+0.5%) and Foschini (+0.3%) eked out marginal gains, while Truworths (–9.2%), Cashbuild (–8.3%) and Italtile (–8.2%) declined. Pepkor (–4.3%) and AdvTech (–5.7%) also ended lower.

Property stocks edged slightly lower. Emira (+2.6%), Fortress (+2.4%) and Growthpoint (+2.1%) posted modest gains as sector fundamentals continued to improve. Fairvest (+1.3%) and MAS (+1.2%) also closed higher. However, NEPI Rockcastle (–5.6%), Sirius (–7.0%) and Lighthouse (–5.4%) weighed, with Burstone (–5.0%) and Resilient (–4.4%) also softer.

South Africa Inc stocks continue to be unloved by the market, with the precious metals sector attracting investor attention and flows for much of the year. Our sense is that the local market lacks sentiment, with both local and foreign investors waiting in the wings for confidence to return to the economy. This month, we review the various data points we are keeping an eye on as we analyse the prospects for a cyclical melt-up among the local-facing sectors of the JSE.

A snippet of year-to-date performance from the retailers indicates that this year’s underperformance has been driven by both multiple compression, indicating a loss of positive sentiment from investors, as well as the continuation of earnings downgrades, reflective of the markets softening outlook on fundamentals. In our view, valuations are now offering investors sufficient margin of safety and are not pricing in the prospect of a positive turn in sentiment. From these levels, we are paying close attention to the trajectory of earnings expectations and positive business and consumer confidence data to drive flows into these under-owned areas of the market. We have already seen a strong uptick in demand for our currency and bonds, suggesting the market is sanguine on prospects for the SA economy.

In stark contrast, precious metals have been a materially outsized contributor to JSE performance this year, so far. Baskets of mid-and-large cap platinum group and gold miners, have each returned 180%, when using a simple average across the returns of the individual names. This is relative to the entire all share index (including these precious metals miners) which, at the time of writing, had returned 34.3% for the year. These miners now account for roughly a quarter of the index.

What is the Economic Data Telling Us?

Against this backdrop, we review the recent flurry of data in the local economy to give us an idea of where things stand. We start with updates relating to the structural reform program and then move onto specific macro-economic barometers to gauge both the level and trajectory of our economy.

Eskom and Transnet continue to make operational progress, removing the bottleneck from potential economic growth. Eskom has recently announced an extremely positive summer forecast, with no loadshedding expected and additions to generation capacity. Additionally, they turned a profit for the first time since 2017, with a R70-billion swing to a R15-billion profit for 2025. 

Though below target, Transnet registered their first year-on-year improvement in volumes since 2017, while also announcing an initiative to allow private sector access to the rail system, a key goal of Operation Vulindlela.

During September, we also saw a flurry of important data points allowing us to take the temperature of the local economy. Listed above, these indicators were largely pointing in the right direction, with consumer confidence, perhaps the most important for short term flows on the JSE, being the sole negative. We look forward to the grey list announcement in October, as well as the next iteration of the Business Confidence Index, to provide further direction on economic momentum. 

Valuations

Currently, our retailers are trading at levels similar to 2023, when loadshedding was at its worst. Only during Covid have we seen more negativity priced into this sector in the last decade. In our view, the current macro climate is stable, if not spectacular, and we think the pricing of the rand and our sovereign bonds is reflective of this. As a result, we remain patient holders of the sector, although we have narrowed our focus to higher quality names.

To juxtapose this, despite material consensus earnings upgrades over the year, we find that precious metals remain exceedingly expensive, trading at approximately three standard deviations above their long-term valuations. The underpin of these moves has been a sustained rally in the underlying metals, with demand driven mostly by investors seeking protection from elevated levels of trade and geopolitical risk, as well as unprecedented concern about the haven status of the American economy and its institutions.

The price action has not been driven by strength in physical markets, which would signal a much more fundamental-driven and therefore, sustainable, trend. South African miners tend to have structurally pronounced levels of operating leverage, making them high beta plays on the movements on the underlying metals. This means that we expect equally outsized moves to the downside upon market normalization. We reiterate our call to remain on the sidelines, on the basis of frothy valuation lacking a sturdy fundamental underpin.

Conclusion

Our guiding principle, as an investment house, is valuation. We constantly search for opportunities where pricing is dislocated from underlying fundamentals and where we can see the pathway to catalysts for value unlock. In assessing growth opportunities, our process is anchored by an assessment of how much optimism or pessimism is reflected in pricing.

Our sense is that there remains too much pessimism priced into the South-African-facing sections of the JSE. The continued momentum of corporate credit extension and machinery imports should act as catalysts for a trend-change in capital formation, which should, in turn, reflect an uptick in business and consumer confidence. This should drive economic activity and find its way into our GDP numbers. Operational progress at both Eskom and Transnet provides a firm foundation for sustained momentum. Therefore, we continue to be buyers of SA Inc exposure into weakness.

International:

Given the strong run-up in some of our portfolio holdings and as part of our disciplined approach to portfolio management, we have recently taken the opportunity to take some profit and trim positions back in line with model weighting:

• Alphabet (GOOG) is up approximately 30% year-to-date (YTD)
• TSMC (TSM) has risen over 50% YTD
• Goldman Sachs (GS) up over 35% YTD
• ING Bank (ING) shares have risen approximately 40% YTD

Local:

We increased our exposure to Bidvest following the release of its FY25 results. While the share sold off more than 6% on softer-than-expected earnings on 1 September, we viewed this as a buying opportunity given the strength of the underlying business and attractive valuation. With management focused on organic growth and deleveraging, we see limited balance sheet risk and potential for earnings recovery as cyclical tailwinds build in South Africa.

On valuation, Bidvest trades on 10.2x forward P/E, a 17% discount to its five-year average multiple of 12.3x. Our model points to a target price of R248.76, implying 15.6% upside from current levels.

Overall, we believe the market reaction was overdone, and the investment thesis remains intact — underpinned by disciplined capital allocation, operational resilience, and a solid long-term growth runway.