When the SAFM market update podcast rolls on, the first thing a listener hears is the familiar opening of Moneyweb, followed by the voice of Dr Horacia Naidoo-McCarthy, manager of Institutional Clients at Allan Gray.
Dr Naidoo-McCarthy explains that market uncertainty, the feeling that the future direction of prices is unclear, can trigger behavioural biases. A behavioural bias is a systematic pattern of thinking that leads investors to make choices that deviate from rational analysis, such as chasing recent winners or selling in panic.
She adds that the rise of artificial intelligence (AI), computer systems that can analyse data and make predictions, brings a new layer of risk. If AI models are fed biased data, they can amplify the same irrational tendencies that human investors display, potentially magnifying market swings.
The core of her advice is to anchor investment decisions in fundamentals. In this context, fundamentals are the underlying financial metrics of a business, earnings, cash flow, balance-sheet strength, that remain relevant regardless of short-term market noise.
While the discussion is aimed at institutional clients, the principles apply to any South African entrepreneur who allocates capital, whether buying equipment, expanding a storefront or investing surplus cash. By checking the hard numbers before reacting to headlines, a small business can avoid costly missteps.
The conversation was part of Moneyweb’s SAFM market update, available as a podcast on Moneyweb. For more analysis of how market sentiment affects investors, see our Markets & Finance coverage.
In South Africa, the Financial Sector Conduct Authority requires all investment managers to disclose how they assess client risk tolerance and the methodologies used in portfolio construction. This regulatory framework obliges firms to document the steps taken to mitigate behavioural biases, such as stress-testing models against extreme market moves. For a business owner, understanding that their advisor must follow these guidelines offers reassurance that investment recommendations are not solely based on short-term sentiment. It also means that owners can request evidence of bias controls, helping them align their capital deployment with a transparent decision-making process.
Artificial intelligence applications in South African asset management are subject to the Protection of Personal Information Act, which governs the use of client data in model training. Companies must obtain explicit consent before feeding personal financial information into AI systems, and they must retain audit trails that show how data inputs influence outputs. For entrepreneurs, this creates a layer of accountability: any AI-driven recommendation they receive can be traced back to the underlying data set, allowing them to question whether the model reflects their specific risk profile or a broader market bias.
The practice of anchoring decisions in fundamentals has deep roots in South African corporate finance, where lenders and rating agencies routinely evaluate earnings stability, cash-flow generation and balance-sheet quality before extending credit. Small and medium-sized enterprises that maintain robust financial statements are better positioned to secure financing at favourable rates, even when market sentiment turns volatile. By routinely monitoring these metrics, owners can demonstrate resilience to banks and investors, reducing the likelihood of being forced into distress sales during downturns.
Behavioural finance research conducted by local universities shows that South African investors often exhibit a “home-bias”, favouring domestic equities despite comparable opportunities abroad. This tendency can be amplified when AI tools highlight local market trends, inadvertently reinforcing concentration risk. Business owners should therefore diversify their asset base across sectors and geographies, using fundamentals as the common denominator for selection. A diversified portfolio can smooth earnings volatility, protecting cash reserves that are essential for operational expansion or unexpected expenses.
The South African JSE’s listing rules require companies to disclose material information promptly, which includes any significant changes in risk management practices or AI deployment strategies. When listed firms adopt new technologies, they must inform shareholders of potential impacts on earnings forecasts and governance. Entrepreneurs monitoring the market can use these disclosures to gauge how peers are integrating AI, offering insights into emerging best practices and potential pitfalls. Keeping abreast of such filings helps owners anticipate shifts in competitive dynamics and adjust their own investment approaches accordingly.
Looking ahead, the Reserve Bank’s Financial Stability Review is expected to address the systemic implications of AI-driven trading and its effect on market liquidity. While the review does not prescribe specific actions for individual investors, it signals that regulators are closely watching how algorithmic models may exacerbate price swings. Business owners should therefore stay informed about any forthcoming guidance, as it may influence the cost of capital or the availability of certain investment products. Proactive engagement with advisors and continuous education on emerging risks will enable entrepreneurs to navigate future regulatory adjustments with confidence.
