If the past quarter had a defining character, it was not a focused direction but rather uncertain oscillation. Markets moved repeatedly between constructive and cautious interpretations of the same underlying reality. On the one side of the pendulum was resilient global growth, firm consumption, easing inflation, and exceptionally strong earnings. On the other side we saw persistent inflation, the hesitation of central banks, and the ever-present risk that geopolitics might yet reassert itself through the oil price. That tension did not only shape the quarter, it also explains why markets, at times, appeared convinced of two contradictory outcomes at once.
What we did see was that the global economic backdrop remained firmer than expected at the start of the war. Consumption expenditure continued to hold up, economic growth proved more durable than many had anticipated, and inflation increasingly appeared to be peaking and turning over. This has brought central banks to a precipice. They are close enough to easing policy for markets to take encouragement, but not quite close enough to remove doubt altogether. At the same time, equity earnings remained unprecedently strong, led by the sheer scale of the tech giant’s capital expenditure, which is required to sustain the artificial intelligence build-out. That strength has mattered. It has provided markets with something more durable than mere sentiment.
And yet, the quarter also reminded investors that economic improvement is not the same as a post-war resolution. Inflation may be turning a corner, but it is not yet comfortably behind us. Growth is holding steady, but not without its sustainability being questioned. Central banks are nearing a pivot, but they are still constrained by the risk of inflation that proves more sticky than expected. Understanding this, the market’s oscillation was understandable. It was not simply economic noise. It was the consequence of an environment that continues to support risk assets, while withholding clarity that would make investors feel secure.
For South African investors, the decline in the oil price provided meaningful relief. That matters for inflation, household cost-of-living pressure, and for the broader tone of the local macro environment. But, here too, one needs to avoid overstatement. Inflation is likely to decline only gradually, while the domestic growth outlook remains constrained within a narrow growth range of around 1%, and meaningful structural improvement still remains elusive. The local picture is therefore somewhat similar to the global one: less strained than feared, but not yet strong enough to alter the medium-term outlook decisively.
At CAM, our focus remains on the medium term, and from that vantage point the corporate earnings outlook matters more than the current discomfort of sticky inflation and its immediate ramifications. Strong company earnings do not eliminate risk, but they do provide a more reliable foundation for investment returns than the market’s shifting assumptions about the exact timing of policy easing. Our interpretation, therefore, is that the quarter should be read less as a warning against participation and more as a reminder to distinguish between transient anxiety and durable fundamental support.
The principal risk to this view is clear. If the Strait of Hormuz remains effectively closed, and oil supply materially impeded for a prolonged period, the inflation, monetary and growth outlook will worsen meaningfully. That will have direct consequences for interest rates, market sentiment and asset valuations, and will justify a much more cautious reading of the opportunities available to us. On the positive side, a final resolution to the Middle East war will improve the outlook meaningfully, although for now, that remains a low-probability event.
For investors, the important point is that binary markets do not require binary thinking. They require patience, perspective, and a willingness to look beyond immediate noise to the drivers of long-term return. That remains the discipline that CAM brings to through its investment philosophy.
I hope you enjoy this edition of Citation.
