Over the last seven years, often described as topsy-turvy, perhaps the last thing many people would expect is that investment returns have been solid and well ahead of inflation. And yet they have been, despite myriad crises, as seen in this Symmetry chart shared by Izak Odendaal, Old Mutual’s Investment Strategist.

Izak points out that in the last six years, we’ve had at least five major global crises, namely:

• 2020 – Covid-19
• 2021 – Post-pandemic supply chain crunch and inflation
• 2022 – Russia-Ukraine war and food and fuel price spikes
• 2025 – US tariff shock
• 2026 – US-Iran war and oil price spike

Additionally, we’ve had some domestic crises to add to the list:

• Junk status (2020) and greylisting (2023)
• KZN riots (2021)
• Severe loadshedding, especially in 2022 and 2023
• Port congestion and collapse in rail volumes
• Johannesburg's steady deterioration

However, Izak says that “the local and global economies have proved to be more resilient than generally expected, each time bouncing back”.

Here, he answers our questions on this surprising resilience and our collective conditioning to crises.

Have we become too conditioned to expect the next crisis, and does that itself create an investment risk?

Markets price in known news very quickly. By the time you read or hear about something, it is already reflected in market prices. Therefore, the kinds of crises that move markets are unexpected. This implies that the riskiest time for investors is often when things are going really well, and the good times are extrapolated into the future. People forget about the cycle and just see a straight line that goes up.

Why have economies and markets repeatedly proved more resilient than the headlines suggest?

Part of the resilience comes from structural changes in the economy. For instance, though fuel prices have surged this year, the average fuel intensity of economic activity has declined over time. Simply put, we use less fuel to generate the same amount of output as 10 or 20 years ago. Cars are more fuel-efficient, and electric and hybrid vehicles are gaining market share. Another example is technology that enables businesses to be more flexible and adaptable, notably allowing work-from-home during the pandemic.

Policy has also supported the economy. During the pandemic, interest rates were cut sharply and there was massive debt-funded government spending. Even this year, many countries subsidised fuel or cut fuel taxes (as in South Africa) to cushion the blow of higher oil prices. The problem is that high debt levels mean governments might be more constrained in responding to future crises. 

Finally, over the past two years there have been massive amounts of private investment in AI infrastructure, stimulating the global economy to the tune of hundreds of billions of dollars.

What has kept returns buoyant despite global turmoil? Is it just some companies that are doing exceptionally well that are driving the returns?

The answer differs across sectors and asset classes. AI-related spending, which is not tied to the current economic cycle but rather to a long-term theme, is one reason globally.

If we look at local markets, it has been the combination of improved fundamentals and attractive valuations. Local investors have been through torrid times over the previous decade, but this meant that SA bonds and equities were cheap. All that was needed was a spark to get a rally going. This came in the form of a successful shift to coalition government in 2024, the end of loadshedding and the implementation of a reform programme (Operation Vulindlela) to improve economic growth. For interest-rate-sensitive assets, the shift to a 3% inflation target has also been positive as investors believe it will pull interest rates lower over time.

Finally, a bit of luck. Gold and platinum prices have surged over the past two years, to the benefit of local markets and the local economy. 

Why have Old Mutual Corporate’s investment strategies proven so successful across various crises?

Let’s start with what would not have worked: market timing. A strategy based on moving in and out of the market around these crises would have likely resulted in losses. It is one thing to see a crisis coming, for instance by correctly predicting when a war would start. It is quite another to predict how the market would respond. In particular, though markets initially fell in each of these crises, they quickly rebounded. Investors who waited for the “dust to settle” are probably still waiting – and have missed out. A strategy that is based on diversification and patience will have performed well through these crises.

Are investors underestimating the ability of businesses and economies to adapt to shocks?

When something alarming happens, it is natural to look for similar events in the past or in other countries to see if there are lessons. Indeed, it is important to be aware of the parallels. But they can be misleading. For instance, when the Strait of Hormuz was closed, many people reached for the oil crises of the 1970s when the world was hit by a stagflationary shock. But a lot has changed since then. The global economy is less reliant on oil because vehicles are more fuel efficient and because services are a much bigger share of economic activity.

Can you explain the “cost of pessimism”? 

One can sum it up with this famous quote from legendary American investor Peter Lynch: "Far more money has been lost by investors trying to anticipate corrections than in the actual corrections themselves.” Over the long term, markets rise and it makes sense to remain invested and just sit through short term volatility.

Has the constant stream of crises changed investor psychology or simply amplified our existing tendency to focus on short-term risks? 

We know that past crises have changed investor behaviour, notably the 1930s depression, but that was extreme and the losses were severe. Although the crises of the past five years have left people around the world shell-shocked, they aren’t necessarily much poorer and therefore it might not have changed their attitude.

What has the past six years taught us about the value of diversification that we perhaps underestimated before?

The main thing is that diversification allows investors to stay the course. If you are invested in a balanced fund, you shouldn’t feel the need to switch around since you have exposure to all the main asset classes. On the other hand, an investor with a concentrated portfolio in equities or crypto or property would have felt the pressure to switch in and out, probably incurring losses along the way.

Do you think we’re more likely to get an upside surprise from SA than the US, with the bulk of returns being local over the next five-year medium-term horizon? 

The SA economy has been resilient, but it is still performing well below its potential. And while the current reform programme should raise economic growth rates, even an optimistic scenario of 2% to 2.5% growth would still be considered average by global standards. However, since our asset classes are cheap, they can deliver above average returns over the next 5 to 10 years.

The situation in the US is almost the reverse. The economy has been growing solidly, driven partly by the AI boom, and the US has arguably the best companies in the world. But all this good news is already priced in. The US market trades at a premium to other countries and to its own history. Therefore, it is likely that future returns will be below average.

On that basis, you want to be overweight SA and underweight US, and maintain a diversified allocation to both (and other markets too).

With so many competing signals – inflation, rates, tariffs, geopolitics and earnings – what is the one indicator intermediaries and investors should be paying most attention to right now?

There is a lot of noise, and with elections coming up in November in the US and SA, the cacophony is likely to grow. The most important thing is not to stay glued to the news, but rather to make sure that your or your client’s portfolio is appropriately set up to perform over the long term, not the next news cycle. If the mix of asset classes is appropriate to meet the long-term goal, and they are being managed by competent fund managers, there is little need to do any more. For most investors, the main indicator to monitor is their own heart rate. If you can stay calm and stay the course when markets are volatile, you will see the results in your portfolio returns over time.