In 2026, adaptability and discernment will be the hallmarks of successful investing. We expect the environment will remain dynamic – shaped by shifting policies, evolving risks, and transformative technologies.
Although 2025 was a year of exceptional returns for South African investors, we remain cautiously optimistic as we enter 2026. The global investment environment is still buoyed by strong monetary and fiscal policy support, which continues to underpin equity markets. Earnings growth has been robust and economic resilience has persisted, despite the challenges posed by tariffs and geopolitical disruptions. We expect this backdrop to continue for now.
Liquidity conditions are supportive. Although US interest rates are expected to continue falling, the pace and trajectory of these cuts is less certain. We are concerned that the exceptional vibrancy of the US economy beyond AI is waning, while fiscal risks and a change in the current downward trend in inflation could constrain central banks’ ability to lower rates.
We maintain an appetite for risk, tempered by an awareness of structural and cyclical vulnerabilities. AI could have a transformative impact on the world, benefiting margins and efficiencies. Conversely, geopolitical tensions, which appear to escalate each week and signal a continuous breakdown of traditional strategic alignments, reinforce the need for genuine diversification, which is difficult to find. This underlines the importance of active management in 2026, when portfolio flexibility and nimbleness, alongside explicit hedges when tactically appropriate, will be important.
Our positioning is overweight in developed and South African equities and underweight in global bonds. While we like gold and certain other commodities, we also have gold exposure in our passive strategies and derivative positions, so we do not explicitly hold these assets in the portfolios to deliver additional alpha.
Inflation and interest rates
In our probabilistic scenario approach, we have added a new “Hawkish Hiccup” scenario: the possibility of volatility stemming from shifts in the trajectory of US interest rate policy, global fiscal dynamics and a global rate cutting cycle which is nearing its end. A less dovish Fed, especially as Jerome Powell’s tenure ends in May, could trigger market friction and downside risks. If a new Fed chair feels political pressure from President Donald Trump and Treasury Secretary Scott Bessent to cut rates, further and faster than data suggests, it erodes confidence in the institutional credibility of the United States and with rising risk of fiscal imbalances, potentially further stoking cyclical growth and more persistent inflation. This could ultimately lead to bigger rate hikes that could amplify volatility and trigger asset and currency adjustments.
Inflation remains a pivotal factor, influencing different interest rate pathways in various regions. In SA, restrictive rates and credible inflation targeting support the rand, though business and consumer confidence face challenges. In the US we believe consensus expectations of 2% real growth are over optimistic, even though the One Big Beautiful Bill will drive M&A and capex.
Policy developments in the US—including mid-term impacts and leadership changes at the Fed—are likely to shape market sentiment. Growing discourse around the K-shaped economy will probably encourage Trump to act to support lower income consumers. As his popularity and that of the MAGA Republicans wanes, expect more frantic behaviour and promises. We will be watching the US consumer closely as we could well see the K-Shaped phenomenon extend into the middle class during 2026.
South African bonds have rallied, but further gains may be limited in the short run. The South African Reserve Bank (SARB) is expected to cut rates cautiously as inflation continues to be anchored at 3%. This makes South African bonds preferable to cash and global sovereigns, though their short-term appeal has diminished. We think that that duration, carry, and roll-down will be more important drivers of fixed income returns. This view is endorsed by our fixed income team, although they will be looking for more evidence of fiscal consolidation in the February National Budget.
Fiscal spending in the US is stimulatory, but questions remain about the Fed’s cutting path and inflation risks. The “Hawkish Hiccup” scenario underscores the potential for policy and market friction, with downside risks.
Key themes in 2026
Our key themes for 2026 include the “early cycle” dynamic, the structural impact of AI, and the importance of diversification and flexibility. Emerging markets are positioned as growth engines, with attractive valuations and robust fundamentals, though selectivity is essential. South African equities and bonds offer relative value, while global equities – especially US small- and mid-caps – are undervalued compared with large caps. AI is expected to drive earnings and growth and, if our early cycle signals and thesis are correct, we want to skew away from the Magnificent 7 and broaden our exposures even more.
Gold remains a neutral asset in our portfolios. Sector opportunities exist in South African banks and insurers, while listed property is attractive but liquidity is constrained. China’s outlook is stable but cautious, with policy support unlikely to shift consumer behaviour significantly. Currency views favour a weaker dollar, supporting emerging market currencies and the rand. We remain constructive on the rand against a variety of other currencies.
For us, the challenge in 2026 will be to embrace change with agility and conviction, where we have it. We believe that as we remain open to new opportunities, vigilant to emerging risks, and committed to active management, 2026 will present us with plenty of opportunities to deliver returns.
