Improving economic fundamentals in emerging markets are beginning to show a more favourable investment environment. It is critical to focus on value and diversify with purpose rather than relying on broad market exposure alone.
The global outlook
- US. The Personal Consumption Expenditure price index is expected to fall towards ~2.5% year-on-year by late 2026. This suggests a lower risk of further aggressive tightening, supporting more stable equity and bond markets over the medium term.
- China. Its share of US imports has declined to below 10%, helping reverse earlier tariff-driven price pressures. This could result in the re-routing of global trade could benefit select emerging markets, while also reducing imported inflation pressures globally.
- Europe. Recession was avoided, inflation is edging towards the European Central Bank’s 2% target and Germany’s fiscal expansion could add around one percentage point to GDP across 2026/27.
- Emerging markets. Stronger currencies, improved fiscal discipline and a softer US dollar are boosting emerging markets.
For South African investors, this creates a supportive but nuanced backdrop, where a firmer rand, improving emerging-market conditions and steady global growth strengthen the case for portfolios that balance local resilience with global opportunity.
Long-term structural themes are becoming influential in market leadership, even as traditional risks remain present. While global AI capex should run between US$5-trillion and US$8-trillion over the next decade, not all beneficiaries will deliver sustainable returns. Periods of cooling are anticipated – and healthy – as markets identify companies building undisputed economic value as opposed to relying on narrative momentum alone.
South Africa enters 2026 on a notably stronger footing than in recent years, supported by better fiscal discipline, improved governance and more reliable energy supply. The removal from the Financial Action Task Force grey list and the S&P upgrade have helped lift institutional confidence, while inflation is trending towards the South African Reserve Bank’s clarified 3% target. Despite a strong 22% return in 2025 (excluding resources), South African equities continue to trade on forward price-to-earnings ratios below their 12-year average and at a meaningful discount to global markets.
