October 2025 Newsletter

Highlights of this month’s newsletter:

“If the rules are such that you can’t make progress, then you have to fight the rules.”

– Elon Musk

Market overview: performance figures (%)

Source: Edmond de Rothschild, 30.09.2025

Source: Edmond de Rothschild

The Federal Reserve lowered its policy rate by 25 basis points in September, the first cut in nine months. This decision follows signs of a weaker labour market. The Fed’s latest projections indicate two additional cuts in 2025, broadly in line with market expectations.

Chair Powell acknowledged that employment conditions are no longer as robust as before, though he was careful not to commit to an aggressive cutting cycle. He stressed that inflation risks remain and that the Fed will act cautiously should tariff pressures push prices higher.

The U.S. reported stable inflation in August, with the core Personal Consumption Expenditures (PCE) index rising 0.2% month-on-month and 2.9% year-on-year. These figures aligned with forecasts and July’s revised data. Growth remains strong: second quarter GDP expanded at an annualized 3.8%, the fastest pace in nearly two years. Housing demand is also robust, with new home sales reaching their highest level since early 2022. Despite a slight slowdown, PMI surveys continue to signal expansion.

Hopes of a recovery in Germany were fuelled by rising public spending and rate cuts by the European Central Bank. However, the acceleration in wage growth in the Eurozone, from 3.4% to 3.6% year on year in the second quarter is likely to limit future easing.

Key risks to monitor:

1 – Political risk

Political uncertainty has eased compared to earlier in the year but should not be underestimated. The VIX index, which measures expected volatility, has fallen back to 16, a relatively low level considering global risks remain unresolved: the tariff dispute is ongoing, the Russia–Ukraine war persists, and the Middle East situation remains fragile. Markets may be growing complacent in the face of these unresolved geopolitical pressures.

Chart 1: Policy risk and VIX indices

Source: Edmond De Rothschild

2 – Interest rate expectations

Markets may be overly optimistic about the scale of Fed easing. Futures pricing implies policy rates could fall to 3% by end-2026, while the Fed’s projections suggest only 3.5%. This gap leaves room for disappointment. If inflation remains sticky, especially under renewed tariff pressures, the Fed may slow or pause its cutting cycle, creating downside risk for equities if expectations need to be revised higher.

3 – Concentration of market returns

The U.S. equity market continues to show significant concentration. The top 10 companies, mainly in AI and technology, contributed 70% of the S&P 500’s total performance this year. While these companies offer substantial growth potential, they also trade at premium valuations relative to the rest of the market. Historically, such shares outperform in strong markets but lag when uncertainty rises. Investors should therefore view them as long-term holdings rather than short-term opportunities.

Chart 2: S&P 500 year to date performance – top 10 companies performance contribution

Source: Edmond De Rothschild

Why we remain confident:

1 – Supportive U.S. Policy

President Trump’s fiscal policies remain pro-corporate, aiming to enhance profitability. His administration has shown willingness to intervene during market stress, as seen following tariff shocks earlier this year. The graph below compares the performance of the S&P 500 in Pres. Trump’s first term to his second term.

Chart 3: S&P performance in Pres. Trump’s first term vs his second term

Source: Edmond de Rothschild

2 – AI investment cycle

Capital expenditure related to artificial intelligence is expected to stay elevated for years. Forecasts indicate that the largest hyperscalers will maintain annual fixed investment above USD 350 billion over the next seven years.

Chart 4: Historical 12-month P/E valuation of the US technology sector and +/- 1 standard deviation

Source: Edmond de Rothschild

3 – Fed interest rate cutting cycles

Historical data shows that equity markets have generally performed well during Fed cutting cycles, even when the S&P 500 is trading near record highs.

4 – Corporate profit margins

U.S. companies continue to demonstrate resilience, maintaining strong margins despite global uncertainties. Forward guidance remains optimistic, with many firms expecting margins to expand further.

Chart 5: S&P 500 profit margins

Source: Alpine Macro

Strategy and outlook

We view current market valuations as balanced—neither excessively high nor cheap. The positive drivers of resilient growth, AI investment, and interest rate cuts are already reflected in pricing. Should these themes underperform expectations, equities could face renewed short term pressure.

Nonetheless, the earnings yield of the S&P 500 remains comfortably above the 10-year U.S. Treasury yield (chart 6), suggesting that equities are not overvalued in historical terms. Similarly, valuation metrics such as price-to-earnings ratios for growth stocks remain well below the extremes observed during the 2000 technology bubble (chart 7).

Chart 6: S&P 500 forward earnings yield vs 10-year Treasury Yield

Source: Alpine Macro

Chart 7: Valuation of growth shares

Source: Alpine Macro

Summary

We remain bullish on equities but will approach the final quarter of the year with caution. The environment still offers opportunities, but selectivity is key. Investors should focus on high-quality companies generating robust free cash flow, as these firms are more resilient in times of volatility. Maintaining patience and staying invested through periods of market turbulence remains the most effective strategy for long-term wealth creation.

Source: Moneyweb, SARB

South Africa’s stock market is enjoying a standout year in 2025, outperforming its emerging market peers by a significant margin. The FTSE/JSE Top40 Index has surged 44% in dollar terms year-to-date, nearly double the MSCI Emerging Markets index’s 23% gain over the same period. This impressive rally reflects a confluence of positive factors, from booming commodity prices to supportive monetary policies, that have created a favorable investment environment.

In addition to this strong performance, South Africa’s equities still appear undervalued relative to those of its peers. The JSE All-Share Index is trading around 11.5x forward earnings, which represents about a 17% discount to the broader MSCI Emerging Markets benchmark. This valuation gap suggests room for further upside, despite the gains in 2025, and it has been attracting global investors seeking value opportunities.

South Africa’s outperformance places it among the top-performing emerging markets globally. Investors are taking notice of the country’s unique combination of strong momentum and reasonable valuations as they evaluate allocations within emerging market portfolios.

Key drivers of the 2025 rally

Several key drivers underpin South Africa’s remarkable stock rally this year. First, commodity prices, especially gold, have surged, providing a significant boost. South Africa’s resource-rich economy has benefited substantially from rising precious metal prices, with gold in particular reaching record highs in 2025. The country’s status as one of the world’s premier gold producers means that when gold prices jump, local mining companies and the broader index get a significant tailwind.

Another crucial factor has been the weakening of the U.S. dollar. A softer dollar tends to lift emerging markets broadly, and South Africa has been a standout beneficiary due to its heavy exposure to commodities that typically perform well when the dollar declines. The dollar’s decline has improved global liquidity for emerging economies and boosted demand for hard assets, such as gold – a double benefit for South African markets.

Additionally, accommodative monetary policy has helped, with inflation pressures manageable, allowing the South African Reserve Bank to keep interest rates at their lowest levels since late 2022. Lower rates have reduced borrowing costs and supported economic activity, which in turn bolsters corporate earnings and equity valuations.

Finally, South African stocks entered 2025 with a valuation discount and the perception of a bargain (relative to other markets) has attracted investors as the year progressed.

Mining stocks leading the charge

South Africa’s market rally has been spearheaded by its mining giants, which carry substantial weight in the local indices. The surge in gold prices to all-time highs has translated into soaring revenues and share prices for JSE-listed gold miners. Gold Fields Ltd, AngloGold Ashanti Plc and Pan African Resources have been standout performers, among the top gainers in the index, thanks to gold’s record run.

Their share prices have climbed dramatically, contributing significantly to the overall market’s gains. Sibanye Stillwater Ltd, a major diversified precious metals miner, has also benefited from this wave, riding the surge in strong gold and platinum-group metals prices. The mining sector’s outsized success this year highlights the importance of commodities to South Africa’s market performance.

This unprecedented gold rally has directly lifted local mining stocks. Hefty commodity exposure means that strength in gold prices can have a disproportionately large impact on South Africa’s equity indices. Indeed, mining companies form a large portion of the FTSE/JSE Top40, so their fortunes significantly sway the overall market. While this concentration creates opportunity for exceptional returns during commodity upswings, it also introduces volatility. Investors have enjoyed the upswing in 2025, but they remain aware that a downturn in commodity prices or mining output could weigh on the index just as heavily.

Risks on the horizon

Despite the upbeat story, investors remain cognizant of several risk factors that could challenge South Africa’s mining-heavy market. Key risks include:

• Labor unrest and strikes: The mining sector has a history of labor disputes and union strikes that can disrupt production. A protracted strike at major mines could dent output and investor confidence.
• Electricity supply constraints: Power shortages and load shedding persist as a significant issue in South Africa. Energy infrastructure problems can curtail mining operations and raise costs, posing a threat to sustained growth.
• Regulatory and policy uncertainty: Changes in mining charters, regulatory requirements, or taxation can impact profitability. Ongoing regulatory uncertainty means companies face risks in long-term planning.
• Infrastructure bottlenecks: Aging infrastructure and logistical challenges (from transport networks to port capacity) can hinder operational efficiency. These bottlenecks can increase costs and limit miners’ ability to capitalize on high commodity prices fully.
• Commodity price volatility: Mining companies are particularly susceptible to fluctuations in the underlying metal prices. A sharp pullback in gold or other commodity prices would directly pressure mining revenues and share values.

Investors must balance these risks against the significant upside potential. The 2025 rally has demonstrated what is possible when conditions align favorably; however, a prudent investment strategy in South Africa requires careful stock selection and effective risk management. Companies with strong operational track records and cost control are better positioned to navigate these challenges.

Forward outlook: Catalysts and long-term factors

Looking ahead, several potential catalysts could drive further gains for South African stocks in the coming months:

• Continued strength in precious metals: The current trend of robust demand for gold and other safe-haven metals is expected to persist, keeping prices elevated. Ongoing high gold prices would directly fuel earnings in the mining sector.
• Improvement in domestic growth: There are early signs of an economic uptick locally. Any acceleration in GDP growth or consumer confidence would add a domestic engine to complement the commodity boom.
• Monetary easing by the SARB: If inflation remains contained, the South African Reserve Bank may find room to cut interest rates. Further rate easing would lower corporate financing costs and stimulate investment, providing a fillip to equity valuations.
• Resolution of power supply issues: Progress on reforms and investments to stabilize the electricity supply (reducing load shedding) would remove a key hurdle for the mining industry and broader economy. Improved infrastructure reliability could unlock higher productivity.
• Global investor rotation into EM: A continued rotation by international investors from developed markets into higher-growth emerging markets could bring additional capital into South Africa. With its strong track record in 2025, South Africa stands to attract a share of any increased EM inflows.

Beyond these near-term catalysts, it’s essential to consider the long-term structural factors that will shape South Africa’s investment landscape. On the positive side, the country benefits from a world-class natural resource endowment, including rich deposits of gold, platinum group metals and minerals that will remain in high demand. Efforts are underway to address infrastructure challenges, with investments in power generation and transport networks aimed at improving efficiency over time.

Ongoing regulatory reforms seek to improve the business and investment climate, which could enhance the mining sector’s competitiveness if implemented predictably. Additionally, demographic trends, such as a growing middle class and a young population, point to expanding consumer markets in the long run. South Africa also serves as a gateway to the broader African continent, positioning it to benefit from increased regional trade and integration in the future.

These structural elements suggest that, beyond the current market cycle, South Africa has solid foundations for continued growth. To be sure, challenges remain, and realizing these long-term advantages will require sustained effort (for example, continued progress on mineral beneficiation and diversification initiatives to move up the value chain).

However, the combination of favorable cyclical catalysts and improving structural fundamentals bodes well for South African equities. After a remarkable 2025, investors will be watching to see if the momentum can carry forward and many will be weighing if the nation’s stocks deserve a larger place in their portfolios going into 2026.

Thematic investing: Did you know?

• A 1,000 MW nuclear plant only requires land equivalent to the size of Central Park in New York, whereas a comparable wind farm would need the land area of all 5 boroughs of New York City combined.
• All of the used nuclear fuel produced by the US nuclear industry over the past 60 years could fit on a football field at a depth of less than 10 yards.
• Living near a nuclear power station gives radiation exposure equal to the amount of naturally radioactive potassium in about 50 bananas. By comparison, living within 50 miles of a coal-fired plant gives radiation exposure that is 33x higher.
• The US has a shortage of nuclear energy workers. The current workforce is ~100,000 but will need to grow by an additional ~375,000 by 2050 to meet demand.
• Nuclear power provides 25% of global carbon-free power and 10% of global electricity overall.
• An egg-sized amount of uranium fuel provides enough energy to power the average person’s lifetime energy use (235,000 kWh).
• Living near a nuclear power plant for a year gives less radiation exposure than a single dentist’s chest X-ray.
• In the past 50 years, 60 gigatons of CO₂ emissions have been avoided thanks to nuclear power.
• Just one uranium pellet (1 inch tall) provides the same energy as 1 ton of coal.
• Since 1961, the main power source for US space exploration has been Nuclear Radioisotope Thermoelectric Generators (RTGs).
• Nuclear radioactive waste accounts for only 01% of total hazardous materials shipped annually in the US, while flammable liquids make up 82%.

Chart 8: Global Energy investment: c.US$200tn in the next 25 years

Source: BNEF New Energy Outlook 2024; Investment required 2024-2050 cumulative

VEGA Global Strategic Fund Update

In September, the VEGA Global Strategic Fund delivered a return of 3,9%, while the MSCI All Country World Index, our reference benchmark, gained 3,5% in USD terms. Since inception, the fund has advanced 16,4%, compared with the benchmark’s 13,8%. This reflects a strong relative performance, with the fund materially outperforming global equities so far this year.

Chart 9: Total return in USD since inception

Portfolio strategy

In the wake of heightened market volatility following President Trump’s tariff announcements, our stance has been to remain disciplined and avoid reactive portfolio shifts. History consistently shows that impulsive responses to short-term political noise often result in suboptimal investment outcomes.

Instead, we have used this environment to evaluate high-quality businesses that were indiscriminately sold off despite their strong long-term fundamentals. Periods of uncertainty can create attractive entry points into quality companies at compelling valuations, and we continue to focus on identifying these opportunities with a long-term perspective.

The portfolio remains concentrated in leading global businesses with durable competitive advantages, particularly those delivering high returns on capital and robust free cash flow generation. Dividend policies are not a central consideration in our selection process, as we generally favour companies that reinvest earnings to drive future growth.

We also resist the temptation to follow short-lived market trends or fashionable investment narratives, as preserving portfolio quality takes precedence over chasing momentum.

Changes we made during the month

Global X Uranium ETF — Increased position

We increased our exposure to uranium, reflecting growing conviction in the role of nuclear energy as part of the global energy transition. The ETF provides diversified access to leading uranium miners and producers, positioning the portfolio to benefit from structural demand growth.

iShares Gold ETF — Increased position

We added to our holding in gold, which we view as a core safe-haven asset during periods of macro uncertainty. With prices supported by strong demand and central bank purchases, we see gold as a valuable diversifier in the portfolio.

Nu Holdings — Increased position

We added to Nu Holdings, reflecting our confidence in its disruptive growth story in Latin America. Strong customer adoption and scalable digital banking services underpin our view of a long runway for growth.

Nestlé — Trimmed position

We reduced our holding in Nestlé. While the company remains a high-quality defensive business, its growth prospects are more modest relative to other opportunities, leading us to reallocate capital toward higher-conviction names.

Novo Nordisk — Trimmed position

We trimmed our position in Novo Nordisk following strong share price performance. While the long-term fundamentals remain robust, we took the opportunity to realise some profits and rebalance the position.

Top 10 Holdings

Monthly returns in USD net of fees

Share of the month: Pan African Resources plc

Share of the month: Pan African Resources plc

Investment case

Pan African Resources offers a rare blend of growth, yield and value. Record FY25 results confirm management’s execution capability, while rising output and full gold price exposure underpin earnings momentum. With a strong pipeline, sector-leading dividends and undervaluation relative to peers, Pan African stands out as a compelling choice for investors seeking leveraged, lower-cost exposure to gold.

FY ’25 performance

Pan African Resources delivered record results in FY25, with gold production rising 5.6% to 196,527 oz and a record H2 output of 111,822 oz. Profit surged 78% to US$140.6m, EPS rose 73% to 7.16c, and headline earnings grew 47% to US$116.6m. The board proposed a record dividend of ZAR 37c (US 2.1c), up ~68% year on year, reinforcing Pan African’s sector-leading payout policy.

Operational growth

The group is set for a step-change in output, guiding 275–292 koz in FY26 and targeting 335–345 koz by FY31. Key drivers are the ramp-up of Mogale tailings in South Africa and the Nobles open-pit in Australia, supported by higher-grade mining at Evander. With all hedges now expired, Pan African is fully leveraged to spot gold, enhancing cash generation. FY25 operating cash flow already reached US$178.5m in H2 and net debt of US$150.5m remains modest at 0.27x equity.

Costs and margins

All-in sustaining costs averaged US$1,600/oz, broadly in line with guidance once hedge effects are excluded. Importantly, ~85% of output came from low-cost operations at US$1,425/oz, ensuring healthy margins. With production unhedged, each $100/oz uplift in gold price directly boosts earnings and dividends.

Valuation and peer comparison

Despite a 156% rally over the past year, Pan African still looks undervalued. Edison values its assets at 37–72 US cents/share, while spot gold implies up to 147c (~109p). On FY26 forecasts, the stock trades on a P/E of ~8x vs peers at ~11x, suggesting a fair value near ~110 pence per share – roughly 40% above current levels.

Outlook

Beyond FY26, growth projects such as the Soweto Cluster, Warrego copper-gold, White Devil JV, and Sheba Fault provide long-term upside. The planned move to the LSE Main Market later in 2025 could broaden institutional ownership and support re-rating.

Chart 10: Estimated Pan African group gold production profile, FY18–31e

Source: Edison Research

Chart 11: Investment inflows in gold ETFs globally of $47bn YTD is the second strongest year on record

Source: IMF, World Gold Council, ECB, Investec Equities estimates

Chart 12: Gold is currently the second largest reserve asset globally

Source: IMF, World Gold Council, ECB, Investec Equities estimates

Chart 13: Precious Metals have outperformed all major asset classes YTD total return

Source: Bloomberg, Investec Equities estimates

In his second chapter, Morgan Housel explores one of the most overlooked realities in life and investing: the most dangerous risks are rarely the ones you’re watching. If a risk is obvious, it can often be priced in, hedged against, or planned for. What truly changes the course of history are the shocks no one expected.

Housel reminds us that major turning points are often surprises. The Great Depression, Pearl Harbor, the 1973 oil embargo, the collapse of Long-Term Capital Management, the Global Financial Crisis, and COVID-19 all blindsided investors, governments, and individuals. In each case, society worried about something else, while the real risk was quietly building in the background.

Why do we miss them?

Human nature drives us to pay attention to what feels measurable and familiar. Economists publish forecasts of inflation, earnings, and GDP because those can be modeled. But the biggest risks often live outside any model, in the messy, unpredictable realm of behavior, accidents, and chance.

“Risk is what’s left over when you think you’ve thought of everything.”

This insight is humbling. It means no amount of analysis can eliminate uncertainty. But instead of despairing, Housel argues that this reality points us toward a better mindset: resilience matters more than prediction.

Building Resilience

Since you can’t predict every risk, the smarter approach is to assume you will be surprised and prepare accordingly. Resilience is about creating systems that can absorb shocks without breaking.

• In investing: Maintain diversification, avoid excessive leverage, and keep a margin of safety through liquidity or cash reserves.
• In life: Stay flexible, manage expectations, and cultivate humility about how little control we really have.Housel’s key message is that resilience beats brilliance. Outguessing the future is nearly impossible, but preparing to adapt to whatever comes is entirely within our control.

What this means for investors

For investors, this lesson is clear and practical: the risks that truly hurt portfolios are the ones few are talking about beforehand. Instead of building strategies around precision forecasts, build for durability.

• Hold cash buffers not as wasted potential, but as protection against shocks.
• Diversify across sectors, geographies, and time horizons to reduce fragility.
• Avoid chasing maximum short-term returns if it means sacrificing safety.

In the long run, survival is the most underrated investment skill. The investors who prosper are not those who predict crises perfectly, but those who endure them and remain in the game to benefit from compounding once the storm has passed.

Source: Visual Capitalist

Sources

Alpine Macro, Anchor, Bloomberg, BNY Mellon, Charlie Bilello, Compound Advisors, Edmond De Rothschild, ETFMG, FactSet, Haver Analytics,  JP Morgan, Julius Baer, LSEG, Morningstar, Morgan Stanley, Refinitive, RMB, Statista, Sygnia, Strategas, The Intelligent Investor, UBS.

Disclaimer

VEGA Asset Management has taken care that all information provided in this document is true and correct. VEGA Asset Management does not accept responsibility for any claim, liability, loss, expense, or damage. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. VEGA Asset Management is an authorised Financial Service Provider with FSP number 776. Past performance is not necessarily an indication of future performance.