The third quarter was characterised by volatile markets, with resources benefiting from rising commodity prices, while inflation concerns and higher bond yields created headwinds for investors. The renewed escalation of the US–Iran conflict disrupted shipping through the Strait of Hormuz, a critical global energy route, pushing Brent crude oil prices up 42% to approximately US$104 per barrel. Gold also remained well supported, rising 4%, while copper gained 8%, reflecting supply constraints and continued demand linked to industrial activity and technology investment.
Artificial intelligence (AI) remained a major influence on equity markets, although performance was far from uniform. July saw an unwind of the AI trade as investors reassessed valuations and the sustainability of semiconductor spending. August brought a strong recovery, supported by robust earnings and continued investment in AI, particularly among large US technology companies. However, September’s renewed geopolitical tensions, rising oil prices and higher bond yields reversed some of these gains. This highlights how increasingly concentrated market performance has become, with a relatively small group of large technology companies driving much of the strength in major indices.
The conflict in the Middle East has also complicated the global inflation outlook. Higher energy and fuel costs risk feeding through into transport, production and consumer prices, potentially delaying the return to lower inflation. Central banks consequently face a difficult balancing act between containing inflation and supporting economic growth. In South Africa, the Reserve Bank raised the repo rate by 0.25% to 7.25% in September, while the yield on 10-year government bonds rose above 9%. The combination of higher borrowing costs, a weaker growth outlook and renewed inflationary pressure presents a challenge for both consumers and businesses.
The bond market experienced a particularly difficult quarter as government bond yields rose sharply across major markets. This reflects not only inflation concerns, but also substantial government borrowing requirements, increased demand for capital from AI-related investment and expectations that interest rates may remain higher for longer. As bond yields rise, existing fixed-rate bonds generally lose value, while higher discount rates can place pressure on equity valuations, particularly in interest-rate-sensitive sectors such as property. Although higher yields can eventually create more attractive investment opportunities, they also reinforce the importance of managing interest-rate risk and maintaining appropriate diversification.
In South Africa, the FTSE/JSE All Share Index ended the quarter marginally lower, down 0.3%, as a 12.8% gain in resources was offset by weakness elsewhere. Looking ahead, uncertainty remains around geopolitical developments, energy prices, inflation and interest rates. While these conditions may cause further market volatility, they also underline the importance of a disciplined, long-term investment approach. Rather than reacting to short-term market movements, we believe investors should remain focused on appropriate asset allocation, diversification and the underlying quality and valuation of their investments.
