Jeremy Gardiner, Director, Ninety One Investors had been enjoying significant improvements in their portfolios. Solid returns last year looked set to continue in 2026 and possibly into next year as positive momentum built into a virtuous cycle.
South Africa in particular, for once, was also in a really good space. A commodity boom, a rampant gold price, a strong rand and the lower oil price saw inflation nicely under control. Further rate cuts were in sight and growth was set to increase steadily going forward, boosted by turnarounds in electricity, the ports and the railways.
And then came the war.
Trying to establish US strategy is tricky. Militarily, the US/Israeli Alliance seems to have achieved significant results, and Trump’s language indicates that he’s keen for an exit. Should this happen in the next two weeks, then the market/economic impact could still be fairly limited.
The risk to this scenario is that the Iranian leadership is obviously enraged and may not be content to “call it quits and move on”. They could instead pursue a messy, Middle East disruption strategy, resulting in sustained oil price hikes and the resultant global economic fallout. Tehran cannot win militarily but they can make it too expensive economically and politically for the Americans to continue for too long.
The big question is whether President Trump has started a veld fire he may not be able to put out. If there is a plan, at this stage it’s difficult to see.
Markets are watching all of this with no clear trend. Outbreaks of hostility traditionally don’t impact markets that much, but should there be a lengthy oil price shock which leads to a change in the interest rate trajectory, and hence a growth impact, then markets will adjust accordingly. Last week saw the biggest ever selling of S+P futures, back to last year’s ‘Liberation Day’ levels.
Americans are concerned, they are well aware of past mistakes in terms of getting “stuck” in armed conflicts in the Middle East and will be in no rush to repeat that model.
Plus, US President Donald Trump has the midterm elections coming in November, and geopolitics does not excite US voters. It’s important to remember, that Trump was elected on the promise of no wars, improving the cost of living, and affordability for poorer Americans. What is of paramount concern to US voters is the cost of living and inflation. Already, households are carrying an additional financial burden because of tariffs estimated by Yale University to be between $1900 and $4700 per household per annum. He cannot afford to have petrol prices, inflation and interest rates all rising in the run-up to elections.
Trump needs oil prices down fast, and nobody is in a rush to help in the Straits of Hormuz. The Allies were not consulted about the war; they feel it’s ‘not their war’. Economically, they may have to help patrol if oil keeps rocketing.
Normally, in a situation where inflation is potentially rising, Central Banks would raise rates, but with a global recession potentially looming, they’ll probably stay on hold, for the moment.
However, even if the war stops, it will take a while for the oil price to settle. An inflationary impact is therefore “baked in” and will probably see rates stuck (if not rise).
So, in summary, it’s all about duration. The shorter the better for investors, with limited long-term impact. Already however, you’ll see fuel price increases with food prices increasing, inflation will rise, and interest rates may have to go up, which would see growth decline.
On the plus side, SA, at the bottom tip of Africa, is geographically well positioned, and assuming we don’t revert to a complete “risk-off world”, SA assets could be an attractive destination for emerging market flows. DM
Author: Jeremy Gardiner, Director, Ninety One