David Bacher, CIO of Corion Capital, reflects on the wild market swings of 2024, highlighting the importance of strategic bets on South African assets like bonds and property. Looking ahead to 2025, he advises a balanced, diversified approach to navigate potential volatility and uncertain global conditions.
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Highlights from the interview
In this interview, Alec Hogg speaks with David Bacher, the Chief Investment Officer of Corion Capital, about the tumultuous year of 2024 and provides insights on investment strategies for 2025. Bacher reflects on the stark differences in asset class performances, highlighting how the right bets in South Africa yielded strong returns, particularly in bonds, property, and interest rate-sensitive shares. South Africa’s favourable political shifts boosted its bond and property markets, in stark contrast to global markets, where U.S. property underperformed amid high inflation and interest rates.
Bacher advises a more cautious and diversified approach for 2025. He stresses the importance of favouring stability over high-risk investments, especially in a year expected to be filled with market turbulence. With unpredictable global events, including Donald Trump’s decision-making, investors should prioritise assets that offer both dividends and capital appreciation.
He underscores the value of dividends, pointing out the unsustainable spread between the S&P 500’s low dividend yield and U.S. bond yields, suggesting that a correction is due. The conversation also touches on the strong performance of Bitcoin, which rose 120%, as well as gold, which gained 27%, positioning them as safe havens in times of uncertainty.
Bacher concludes by emphasising the importance of a conservative, diversified approach to investing in 2025, advocating for patience and prudent decision-making in an environment rife with volatility and unpredictable global factors.
Edited transcript of the interview
Alec Hogg (00:10.98)
2024 was either a fantastic year or an awful year, depending on where you placed your bets. It was a bit like entering a casino and deciding whether to play red or black. If you chose correctly, you’d be smiling all the way home. If not, you might be looking to change your address. Today, we’ll talk about 2024 and the massive variance in performances across different asset classes with David Bacher.
Alec Hogg (00:45.678)
David is the Chief Investment Officer of Corion Capital, and we chat every month about what happened in the previous month. This time, though, we’re looking back on the entire year. David, before we kick off, I need to get your sense of 2025. I don’t want a forecast—anyone forecasting these days is either a charlatan or a fool, given how unpredictable things are. But what’s your gut feeling for 2025—good, bad, or ugly?
David Bacher (01:28.292)
Sure, I think you’ll accuse me of sitting on the fence. What I do know is that we’re in for a year of market turbulence. Trump’s unpredictable decision-making means headline risks will be constant. From a current perspective, you don’t have to swing at every pitch. You should favour a more balanced, diversified approach. Stability should be prioritised over high-risk bets. Companies and asset classes with solid total return potential, including dividends and capital appreciation, should be your focus. Unlike last year, where we thought South African assets were cheap, 2025 calls for a more cautious, defensive strategy.
Alec Hogg (02:26.168)
I love the holidays because I get to catch up on all those podcasts I wanted to listen to. One I listened to three times was an interview with Charlie Munger, the founder of Strathmore, and one of his last before he passed away. It’s full of wisdom, and the key takeaway was that Munger and his business partner Warren Buffett never went for the spectacular. They just made sure not to step on landmines, kept moving forward, and let compound returns take care of the rest. Sounds to me like this approach might be the one to favour in 2025.
David Bacher (03:27.78)
Correct. People forget how important dividends are and the significant role they play in long-term equity returns. If you look at today’s S&P 500, the dividend yield is about 1.3%, compared to the U.S. 10-year yield of 4.6%. This spread is unsustainable. Something has to give—either share prices will need to come down, or bond yields will fall. That’s why, as I mentioned earlier, it’s important to look at asset classes that provide yields and dividends, rather than betting on a continued meteoric rise in U.S. equities.
Alec Hogg (04:10.532)
David, let’s dive into the presentation you put together. Thank you to you and your team. It’s a highlight for many in the business community to see how you’ve illustrated the best and worst performers of 2024. One thing that stood out was the South Africa vs. Rest of the World perspective. If you’d gotten your asset classes wrong in South Africa—if you’d gone with global bonds, for example—you’d have done terribly. But if you chose South African bonds, you’d have done great. The same with property and equities. South Africa’s property market was a huge outperformer, up 25% in 2024, while global property, in U.S. dollars, was only up 1%. Can you explain this divergence?
David Bacher (05:20.354)
Yes, absolutely. 2024 saw many political shifts that had profound effects on financial markets. In South Africa, we had a very favourable political outcome, which positively impacted our bond markets and expectations of future interest rates. This led to a huge rally in interest-rate-sensitive shares and bonds in South Africa, boosting our property market. On the other hand, the U.S. was dealing with inflation and interest rates at 30-year highs, which negatively affected their interest-rate-sensitive assets, including global property. So, the key difference lies in the political landscape—South Africa saw reduced risks, while the U.S. continued facing challenges.
Alec Hogg (06:28.164)
But isn’t it interesting? When we had the government of national unity, most commentators were suggesting you could buy South African shares. But in hindsight, what they should have been saying is: buy South African bonds and property.
David Bacher (06:41.252)
It depends on the shares. If you look at late in the presentation, you’ll see interest-rate-sensitive shares performed exceptionally well—retail shares, for example, with some up by 60%, and many more up by 30% or more. In South Africa, you always have the split between interest-rate-sensitive shares and dual-listed, RAND-sensitive shares, which often perform oppositely because they are driven by different factors.
Alec Hogg (07:17.124)
Global equities were up by 17.5%, while South African bonds gained 13.6%. But South African equities massively underperformed global equities. Global bonds actually fell by 3%, while South African bonds had excellent performance. The South African property market did well, too, but as you mentioned, it’s all about making the right bets.
David Bacher (07:46.884)
Correct. The South African performance of 10% in U.S. dollars may seem underwhelming compared to the MSCI World Index, but in reality, the U.S. was very strong, and China showed strength as well. If you compare South Africa to other emerging markets like Brazil or Mexico, our markets actually performed reasonably well, given the headwinds. A 10% return in U.S. dollars with a relatively stable currency isn’t as bad as it seems. When we present these numbers, we highlight the best and worst of the major asset classes. If South African equities are at the bottom with a 10% return, then it shows our investors did pretty well because other asset classes performed even better.
Alec Hogg (08:44.804)
But considering the performances of the NASDAQ and S&P 500, those markets far outperformed South African equities. The big issue, though, is that it depended on where you put your money. Certain shares did incredibly well, while others did terribly. Let’s start with the best-performing countries. Taiwan was up by 34%, the U.S. by 25%, and China by 19%. There’s a story behind each of these, right?
David Bacher (09:25.88)
Absolutely. Taiwan’s market was driven by its semiconductor industry, especially TSMC, a leader in AI and semiconductors. This benefitted from the global surge in demand for AI. The U.S. and China are both at the forefront of innovation, particularly in tech, and that fueled their markets. China, coming off low valuations, saw a rebound in market ratings, while the U.S. remains expensive but continued to benefit from strong earnings growth.
Alec Hogg (10:39.428)
On the other hand, Brazil and Mexico were the worst performers, down 30% and 27%, respectively. These countries both had elections with very strong left-wing parties coming into power.
David Bacher (10:58.606)
Correct. Emerging market currencies globally faced significant challenges in 2024, with the U.S. dollar playing a major role. As the dollar strengthened, it made servicing dollar-denominated debts more difficult for emerging markets. Add to that the prospect of increased U.S. tariffs, especially targeting Chinese imports, and you have heightened global trade tensions, which weren’t favourable for emerging markets.
Alec Hogg (11:42.786)
Yes, South Africa seems to have benefitted from a more pragmatic approach compared to Brazil and Mexico, which are seen as more ideologically socialist. But stock markets often tell you what’s coming for an economy. When a stock market falls, like in Brazil, it’s usually a signal from investors that they’re not optimistic about the future.
David Bacher (12:22.212)
Exactly. And interest rates also play a role. Countries that export a lot of basic materials, like Brazil and Mexico, were hit hard by reduced demand for commodities, especially from China. That pressure impacted their economies and, ultimately, their stock markets.
Alec Hogg (12:47.204)
Now, onto the best-performing asset classes. Bitcoin soared by 120%, while gold rose by 27%. These were certainly the safe havens against uncertainty, with Bitcoin outperforming.
David Bacher (13:04.004)
It was a landmark year for Bitcoin. If you’d asked me a year ago whether Bitcoin could be considered an asset class, I might have disagreed. But it’s clear now that Bitcoin has gained recognition, driven by institutional adoption, macroeconomic shifts, and its growing role as an investment. These factors helped fuel Bitcoin’s historic growth.
Alec Hogg (13:35.78)
On the other end of the spectrum, the worst-performing currencies were the Brazilian real and Russian ruble, both down by 21%, and Argentina’s peso remained under pressure. The “Milei effect” hasn’t quite materialised yet.
David Bacher (13:52.814)
That’s right. The first half of the year was rough, though things have stabilised a bit since then. The strength of the U.S. dollar and global tariff talks have hurt these countries. As the U.S. dollar strengthens, it’s not good for emerging markets, and the rhetoric around tariffs and what it means for demand from China and commodities has had a secondary negative impact.
Alec Hogg (14:28.932)
Here in South Africa, if you picked the right sectors, you’d have done incredibly well. Technology was up by 33%, consumer discretionary by 29%, and financials had a good year with a 22% gain.
David Bacher (14:50.904)
Yes, the technology sector in South Africa is small, with a market cap just north of 100 billion rand, so despite the 33% growth, its impact on the broader market is limited. However, interest-rate-sensitive sectors, like retail and financials, performed well due to better conditions, including no load shedding and more favourable political outcomes that reduced long-term interest rate risks.
Alec Hogg (15:44.132)
The worst-performing sectors on the JSE were basic materials (down 8.5%), telecoms (down 8%, with MTN struggling), and healthcare (down 4.5%). Any thoughts?
David Bacher (16:04.644)
Healthcare was hit by Aspen, which saw a 20-25% decline. Telecoms were impacted by MTN’s troubles, and basic materials suffered due to economic growth concerns, particularly in China, which reduced demand for materials. This weighed heavily on local bulls.
Alec Hogg (16:48.068)
Individual shares, like Mr. Price (up 95%), Old Mutual (up 64%), and Capitec (up 58%), did exceptionally well. These three really stood out.
David Bacher (17:09.036)
Incredible returns. Stock pickers who focused on these companies, like John Bicard, reaped the rewards. But as I mentioned earlier, investing is always about looking forward. The outlook for SA-sensitive shares vs. dual-listed shares has become a bit less of a one-way bet. You could have prospered in 2024, but 2025 might be a bit different.
Alec Hogg (17:50.52)
The worst? Sasol plummeted, and Sibanye Stillwater had a terrible year, mainly due to the palladium price. Even BHP, traditionally a stable performer, was down 24%.
David Bacher (18:20.472)
Yes, many commodity shares were under pressure due to declining commodity prices. These companies are highly geared to commodity prices, and when they fall, it hits both their earnings and share prices significantly.
Alec Hogg (18:56.014)
So, looking ahead to 2025…
David Bacher (19:00.676)
As I mentioned earlier, we were in favour of investing in South Africa last year. But there are a lot of risks out there now. You don’t need to swing at every pitch. We’re more on the conservative side, advocating for diversification. While it might seem boring, a more cautious approach will likely be rewarded in a year of volatility. Sometimes, the best strategy is to sit on the sidelines a bit more. Fixed-interest assets are offering good yields of 4.6% in dollars—certainly not a bad investment.
Alec Hogg (20:00.068)
As Kenny Rogers sang, “Know when to hold them, know when to fold them.” If you’re a long-term investor, you’ll certainly be holding. You won’t be jumping in and out, buying new stocks. It seems like 2025 will be a year of going back to basics. Thank you for taking us through 2024, David. It was a year where, if you picked the right assets, you’d be smiling. If you didn’t, well, it was a tough year. David Bacher, CIO of Corion Capital, and I’m Alec Hogg from BizNews.com.
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