Experts reveal where the smart money will be invested in 2026

As we head into the second month of the year, it’s a good time to re-­examine your investment portfolio. Having just come out of a strong multiyear equity run and elevated valuations, investors need to be more deliberate about where returns can realistically come from, and which assets serve as protection when growth or inflation shocks hit.

Key themes that dominated the investment landscape last year included artificial intelligence (AI), both as a tool and an investment theme, geopolitical risk, inflation and interest rates.

Mike Coop, Morningstar Investments’ chief investment officer for Europe, the Middle East and Africa, says that in an uncertain world, tendencies associated with behavioural finance have become more prevalent.

“We’ve seen that behavioural overreaction to news flow, and we think that will continue to be the case.”

He adds that as 2026 gets under way, investors need to be mindful of how much optimism is baked in and the sensitivity of markets to news flow.

Coop says return drivers are assets that are expected to give better than usual returns, either because they are mispriced in some way or the fundamentals might be, at the moment, not as good as they could be. Examples he includes in this category are Chinese equities and emerging market bonds.

“These are markets that offer an array of opportunities, where the mispricing comes from different sources, and that means that when you add them together, they all behave and move in lockstep.

“There are different factors there that range from commodities through to AI spend through to geopolitical mispricings through to recovery in the economy.”

Coop says smaller US companies are another part of the capital markets that have been overlooked. “They are really starting to perform much better this year.”

He points out that diversifiers are assets expected to hold up, or move differently, when risk assets struggle. Examples are world consumer staples and healthcare.

Where the gold and other opportunities lie

In a continuing bull run, the price of gold recently broke the $5,000 per ounce mark. James Luke, senior portfolio manager of gold and commodities at Schroders, says if one looks at the average price ratio of gold equities to gold bullion over the 2022-2024 period, gold equities are about 25% higher despite a completely transformed margin and returns environment.

“It surprises us that despite operating margins that are more than 150% higher than the brief peak of 2020, gold stocks remain cheaper relative to gold bullion today on a price basis than they were then,” he says.

Old Mutual Wealth investment strategist Izak Odendaal notes that gold’s march was barely interrupted by US President Donald Trump backing down from acquiring Greenland. “This has also pushed the prices of platinum group metals higher, a major boost for South Africa’s currency, financial markets and ultimately its fiscus, though, sadly, it struggles to turn higher prices into higher output and employment.”

Odendaal cautions that there are strong arguments in favour of global exposure and several risks to investing locally, from political uncertainty to economic challenges. The biggest risk is simply that the gold price plunges from its record level.

“The JSE is also a concentrated market. As much as people fret about the US, where the top 10 shares now account for almost 40% of market value, the picture has always been worse in South Africa. The top 10 shares on the JSE account for half of the All-Share Index’s market ­value,” Odendaal notes.

Sean Neethling, head of investments for South Africa at Morningstar, says there are good investment opportunities in Japan, where the currency is particularly attractively priced, and in the UK.

“In Latin America, we found Brazil and Mexico to be particularly attractively priced. Korea has been an exceptional idea and has benefited client portfolios. You’ve got two really good companies in SK Hynix and Samsung there.”

Bonds

Nishan Maharaj, head of fixed interest at Coronation, says the first thing to point out is that the ratio between cash and bond yields is now close to its tightest level since 2010. “This implies that the breakeven for bond yields relative to cash is quite low. The South African bond market had a remarkable year with yields compressing significantly across the curve.”

By the end of the year, the 10-year South African government bond (SAGB) was paying 8.2% interest. The 30-year SAGB dropped a lot in yield (by a bit over two percentage points) to 8.95%.

Because long-term bond rates fell like this, very long-term bonds of 12 years or more made about 31.21% in 2025. That’s better than the overall bond market, which returned 24.24%.

Nominal bond returns far outstripped the returns from other fixed income assets, with cash returning 7.28% over the year and inflation-linked bonds returning 15.4%.

Currency markets

The US dollar is one of the big things to watch this year. Even before the Greenland drama, many investors thought it could weaken because they expected US interest rates to fall. The Fed is expected to cut rates twice more. If Europe keeps rates steady and Japan raises or keeps rates higher, the dollar becomes less attractive compared with the euro and yen.

Nicky Weimar, economist at Nedbank’s group economic unit, says the US dollar posted its worst decline in eight years in 2025, falling 9.4% on a trade-weighted basis.

“US policy uncertainty was mainly to blame. The initial fracture stemmed from Trump’s controversial trade and foreign policies, which unsettled investors and prompted many to hedge their dollar exposures.

“Later, concerns over slowing job creation and the easing of monetary policy kept the greenback on the back foot. So far this year, the dollar has gained modest ground against the other major currencies.”

There’s also concern about a leadership change at the Fed in May. If Trump appoints a new central bank boss who strongly favours lower rates, rates could be cut more than markets think is sensible, which could put extra pressure on the dollar.

On top of that, big swings in US trade and foreign policy have made some investors trust the dollar less. As a result, some central banks and investors have been slowly reducing how much they rely on the dollar, buying more gold and other currencies instead.

The dollar’s share of global currency reserves has dropped a lot over time, from about 85% in 1970 to about 58% in 2025. It’s still the world’s top reserve currency, but if the US keeps pursuing Greenland in a way that worries markets, more investors may start looking harder for alternatives.

In summary, investors would be well advised to blend return drivers with diversifiers, keep global exposure and respect South Africa’s concentration risk. Gold and bonds can cushion shocks, whereas a volatile dollar argues for patience, rebalancing and staying invested calmly. DM

This story first appeared in our weekly DM168 newspaper, available countrywide for R35.