Investors in South Africa are shifting from easy wins to building resilient, diversified portfolios designed for long-term stability. (Image: iStock) 
2025 will be remembered fondly by investors. Local equities gained about 37% in rands, bonds were up 21% and the rand strengthened by more than 12% against the dollar.
Kyle Hulett, head of investments at Sygnia Asset Management, described it as an “amazing year in terms of returns”, with gold the clear standout after rising more than 50%.
Read more: Five economic and business factors to watch for SA in 2026
But in the same breath, Hulett urged restraint. “Volatility is definitely back,” he said, adding that markets are likely to become “a lot more wobbly from here” as 2026 unfolds.
Foord Asset Management portfolio manager Rashaad Tayob believes the broad-based rally across almost all major asset classes, driven by the weaker dollar, is unlikely to repeat.
So for all the investor passengers on board for yet another turbulent year: check your safety equipment and prepare your landing gear so that you can be ready for any change in the weather.
US keeps its lead through AI
Globally, the stage remains dominated by the US. Neil Shearing, group chief economist at macroeconomic research company Capital Economics, expects the artificial intelligence boom to roll on through 2026, with most of the economic upside accruing to the US.
Morningstar’s 2026 Global Outlook Report estimates that “hyperscalers” like Meta, Amazon and Oracle will spend hundreds of billions of dollars on data centres, with combined capital expenditure in 2026 expected to be four times larger than that of the entire publicly listed US energy sector.
This investment wave supports a bullish outlook for growth. Capital Economics expects US GDP to expand by 2.5% in 2026, well ahead of most developed peers.
Hulett flagged growing concern about the “huge amounts of debt” hyperscalers are accumulating to fund AI expansion, noting a lack of clarity around the monetisation of these programmes.
Read more: Crossed Wires: We’re in an AI bubble. Wait, we’re not in an AI bubble
Portfolio manager and head of research at Foord, Ishreth Hassen said the IT sector has reached record-high valuations. He warned that the “funding loop” currently driving the AI gold rush – where advertising profits bankroll massive capital expenditure – is not infinite.
A dollar for your thoughts?
A primary driver of last year’s performance was the weakening US dollar. Morningstar data reveals the greenback fell 10% from its 2025 peak, marking its weakest year in more than a decade.
This decline provided a significant tailwind for emerging markets and South African investors in particular. Morningstar believes it remains overvalued relative to most global currencies.
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“We are inclined to anticipate US dollar depreciation on a structural basis would provide a tailwind to [emerging market] relative equity performance as it eases financial conditions and has a positive translation effect, benefiting dollar-nominal growth and earnings,” said Tom Wilson, head of emerging market equities at Schroders. “This may combine with attractive relative valuations, and a potential stabilisation or improvement in relative return on equity.”
Other markets worth watching
Away from the US, the UK remains a standout bargain, trading at about half the US multiple with G7-leading dividend yields, according to Morningstar.
While Europe’s growth lags due to fiscal strain in France and German market share losses, Morningstar finds European valuations “far less demanding”, particularly in Denmark, Portugal and the Netherlands.
Julian Evans-Pritchard, head of China economics at Capital Economics, sees a gradual shift “away from investment and towards consumption” in China. This coincides with its “anti-involution” campaign to curb deflation, which is expected to benefit industry leaders by forcing out unprofitable peers in sectors like electric vehicles and cement.
Read more: China’s Central Committee gears up for pivotal Five-Year Plan amid multiple challenges
Across emerging markets, easing inflation and a softer dollar are improving conditions. “We continue to favour markets such as Brazil, Mexico, South Africa, India and parts of Central Europe, where valuations remain compelling and policy flexibility is high,” said Abdallah Guezour, head of emerging market debt and commodities at Schroders.
Hidden gem or hard reality
After delivering impressive returns in 2025, South Africa has secured its place on the investor watchlist for the year ahead. Morningstar researchers Michael Dodd and Sean Neethling labelled the local market a “hidden gem” following its 42% return in US dollar terms during 2025.
Nick Balkin, chief investment officer at Foord, believes much of the scepticism around domestic companies is misplaced. He said that the “ratings gap” applied to South African-focused firms is unwarranted, with many businesses trading at sizeable discounts despite stable earnings.
/file/attachments/2986/Screenshot2026-01-06at104007_289738_948edcd83d83d00fbf73d35e5d780f23.png "High metal prices and a shift toward large-cap equities are driving gains for gold and platinum producers on the JSE. (Graph: Morningstar 2026 Global Outlook)")
Not everyone is convinced. Sygnia sees an “L-shaped recovery”, according to Hulett. This means that while conditions won’t get worse, they are unlikely to improve rapidly. He pointed to South Africa’s weak productivity, a long history of fiscal slippage and its position at the bottom of global AI readiness rankings.
Confidence improves, SMMEs struggle
South Africa’s real economy reflects a starker divide. While macro indicators improved in late 2025, marked by a five-point rise in the RMB/Bureau for Economic Research business confidence index, an S&P credit upgrade and removal from the Financial Action Task Force’s grey list, the small business sector remains fragile.
The Small Business Growth Index, compiled by Absa, the South African Chamber of Commerce and Industry (SACCI) and Unisa, places small, medium and micro enterprises (SMMEs) in the “Vulnerable Zone” with a score of 51.50.
Read more: Most of SA’s small businesses are in distress as economic pressures mount
About 67% of small firms plan to raise prices in 2026 to offset rising costs, while only 38% believe they could survive more than a year without external support.
SACCI chief executive Alan Mukoki said progress will depend on “meaningful reductions in red tape” and improved infrastructure stability.
What this means for you
Expect steadier, more selective returns after an exceptional 2025.
Offshore investing matters, but currency gains will be harder to come by. The US is likely to drive global growth, though expensive tech shares carry higher risk. South African assets still hold value, particularly banks and defensive shares. Diversification and income will matter more when navigating 2026.
Portfolio positioning
As markets transition into 2026, experts are advocating for a more disciplined and selective approach to portfolio construction.
Morningstar’s report recommends pivoting from overextended US tech giants towards undervalued US small-cap and value shares. Locally, Foord has increased its South African equity exposure to more than 60%, prioritising defensive sectors like healthcare, consumer staples and retail banking.
In fixed income, Sygnia has moved South African bonds to neutral, favouring emerging market bonds with better inflation profiles.
For those seeking alternatives, Sygnia suggests offshore-heavy equity funds, while Morningstar highlights private credit as a means for capturing growth outside shrinking public markets.
Investing in 2026 will bear less resemblance to the smooth flight of the past year. The air is thinner, the visibility lower and the cost of pilot error much higher.
South Africa may well prove to be that “hidden gem” for patient investors. The challenge is avoiding the turbulence of an L-shaped recovery while staying invested enough to benefit when the fog eventually clears. DM