Financial market outlook for 2026: Cautiously optimistic about SA

You can also listen to this podcast on iono.fm here.

JIMMY MOYAHA: Now 2025 was certainly quite the year from a performance perspective and a market perspective – and the only question that remains going into the new year is what 2026 holds.

We have some interesting insights to share from the team at Momentum Investments. They seem to have quite a few views around what they think 2026 could potentially shape up to look like. I’m joined on the line by the head of asset allocation at Momentum Investments, Herman van Papendorp, to look at this and see what to make of it.

Herman, lovely to have you on the show. Thanks so much for taking the time. Let’s start with reflections on the 2025 year and perhaps some of the asset classes that really stood out for you from an investment point of view and from a performance point of view.

HERMAN VAN PAPENDORP: Thank you, Jimmy. It’s nice talking to you and the listeners. The first thing is how strong global equity markets were, and how strong South African equities and South African fixed income was during the course of 2025. Those were the outstanding parts of it.

Listen/read: Dollar weakness sets the stage for EM outperformance in 2026

If you look at where we are at the moment with global equities, global equities are roughly up around 20% for the year. If you look at local equities, local equities are up more than 40% for the year.

So it’s been quite a gangbuster year for investors exposed to global and local equities.

Fixed-income yields have rallied massively during the course of this year as well, so obviously a lot of your listeners will have some exposure to South African fixed income as well, and they will benefit from that.

So I think all in all, when listeners open their investment statements from their asset managers and investment managers they will see very good news for 2025 as far as their returns are concerned.

JIMMY MOYAHA: Let’s look ahead to 2026 then, Herman. What are some of the 2026 expectations from a sentiment perspective – and perhaps we’ll then get into various asset classes thereafter. But how are you seeing the 2026 year potentially shaping up?

HERMAN VAN PAPENDORP: I think we need to be realistic that we are not going to necessarily have the same magnitude of returns that we had in 2025 – from global equities particularly. We had a very strong year during the course of 2025.

I think in 2026 we’ll have lower returns, still positive returns, but you’ll probably have to say that it’s not going to be as peachy and rosy as the scenario in 2025.

Local equities, I think, can still do pretty well this year. Maybe not the 40%, 50%, but I would not be surprised if you still get some mid-teen kind of returns from the local equities as an asset class. So that’s pretty decent.

If you look at an inflation number of 3.5-4% that we’re looking at for next year, your real returns are quite decent coming through from the local equity asset class, which is normally the biggest part of any South African-based investor’s portfolio.

JIMMY MOYAHA: Herman, do you have any areas from a global perspective where you might be a bit concerned within a markets perspective – whether we’re looking at valuations, whether we’re looking at just the performance of these markets. Are there any areas at the moment that are of glaring concern?

HERMAN VAN PAPENDORP: The one thing that we’re probably going to have to go through is the next couple of quarters in the US, where we still have to see that impact of tariff increases coming through into growth and into inflation.

Read: South African stocks set to ride broad EM rally: Momentum

That means that we’re probably going to have a bit of a picture of the next quarter or two being a little unstable for global equities – and particularly for global fixed-income and the US bonds, particularly where US fixed income will have that negative sort of sword hanging overhead of potentially rising inflation in the next quarter or so. And the equity market may have a bit of a hiccup as growth is somewhat slower in the first quarter of next year.

But as I think as we go through the year we’re probably going to see that growth picks up again because you have a lot of fiscal stimulus coming into the US economy. You’ve got some Federal Reserve rate cuts coming through and underpinning global equities.

Read:
Fed cuts rates with three dissents, projects just one cut in 2026 [Dec 2025]
US Fed cuts rates by another quarter point [Oct 2025]

So the combination as we go through the year may be more positive. But I would be a little bit circumspect for the next quarter or so as we have those tariff impacts coming through into US inflation and US growth on that side.

JIMMY MOYAHA: Herman, the US picture has certainly been quite an interesting one to keep an eye on. We kept an eye on it right up to the very last interest-rate decision that took place in December last year; and coming into the new year there is expectation around everything from a new Fed chair – given that Fed Chair Jerome Powell’s term ends in May, which would be around Q2/Q3-ish.

Read:
Trump says he might still fire Powell
Trump says he thinks he already knows choice for Fed chair

How are some of these factors perhaps affecting how investors might be seeing that US picture and that US market? Is it something of concern at this stage that this is still up in the air and yet to be confirmed, or are markets kind of taking that in their stride and planning around it?

HERMAN VAN PAPENDORP: I think markets very well know that the Fed chair is going to be changed. The question is just who it’s going to be. President Trump has said that he’s going to tell us early in the new year. So in January we’ll probably know who it will be.

I think what we’re probably going to see is a bit more of a dovish Fed chair, meaning that you’re probably going to see the Fed chair being more inclined to try to cut rates more aggressively than the current Fed chair would be inclined to do.

So all in all, if you have that kind of environment, that’s a pretty positive environment for US equities because equity markets do like interest-rate cuts in an environment where you don’t see a recession in the US and we’re not forecasting a recession; we think it’s going to be a pretty soft landing.

Read: The five candidates in the running to replace Powell as Fed chair

So that will probably be a positive underpin for US equities – the fact that we might actually see more interest-rate cuts than would otherwise have been the case under the current Fed chair. I think that’s positive for equities in the US.

But it’s not positive for bonds because it might put a question mark on the inflation-fighting ability of the Fed and its credibility to be fighting inflation with a much more dovish kind of Fed chair who’s more inclined to cut rates more aggressively than the current incumbent.

JIMMY MOYAHA: If you are just joining us, we are in conversation with Herman van Papendorp of Momentum Investments, taking a look at the outlook going into this new calendar year from a markets perspective, a sentiment perspective, potentially even an opportunity perspective.

We’ve reflected on what the 2025 year brought us and we’re looking ahead to what the 2026 year could potentially hold.

Herman, we touched on the fact that various asset classes over the 2025 year experienced different performances, different driving factors. Going into the 2026 year, obviously there are a lot of uncertainties that persist. There are market conditions that we can never forecast and can never tell, but that also means that when we look at markets it’s important to have a structured framework and a viewpoint on what the year could hold.

From an asset-class perspective have you identified key asset classes that you think could be the leading asset classes going into this year? Last year we saw it was the commodity story; it was very much the mining story in South Africa’s case. Is that the case from your perspective going into the new year or are there other asset classes that you’ve been eyeing?

Read: New critical minerals strategy will add policy certainty – Mantashe

HERMAN VAN PAPENDORP: I think, Jimmy, from those commodity shares that really underpinned the equity market this year, we are likely to still see them continuing to provide some support.

But in 2026 we’re likely to see South African domestic shares also starting to come through a little more – those shares that are linked to the domestic economy – because we’re likely to see the Reserve Bank still cutting rates.

That’s normally good for the SA Inc kind of shares, as well as the fact that we’re likely to see a positive delta on South African growth as we’re going from having 0.5% growth in ’24 to above 1% this year in ’25, and then maybe above 1.5% in 2026.

Listen/read: Financial sector review 2025: The security barometer of markets

So positive growth momentum, some interest-rate cuts. That’s good for the domestic shares that are linked to the domestic economy and the domestic interest-rate cycle.

So I think SA equities will still perform well next year, but you might see more shares coming to the party in 2026 than only the commodity shares that were really driving the SA equity market in 2025.

JIMMY MOYAHA: Herman, what are valuations? You touched on the US picture and what that’s been looking like. What of valuations going into the new year? Do we still think they’ll be of concern for investors, and do we still see some markets as having stretched valuations?

HERMAN VAN PAPENDORP: I think the US has some stretched valuations. So as far as the US is concerned, if you look at what valuations look like, their forward multiples are somewhere around 23 times forward earnings. So that’s quite expensive compared to the past.

But what we have in the US is that at least they are supported by the profit growth that still remains solid, especially if you factor in that they are likely to still see a sort of soft-landing scenario rather than a recession in the US.

That profit growth will probably keep valuations on the expensive side. What it does mean is that obviously the returns that you can expect from US equities are likely to be undermined a little bit by the fact that the valuations are already factoring in a lot of good news.

Read: Asia stock surge and currency gains fuel 2026 investor optimism

That is totally different from South African equities, because South African equities are not expensive. They are on the cheap side because you’ve had a market run. But the market has run in line with the fact that profit growth has also accelerated in SA.

So SA equities still remain cheap – and that’s a positive underpin.

ADVERTISEMENT:

CONTINUE READING BELOW

And emerging markets, which are a little wider than SA, are also still looking cheap as far as valuations are concerned. So with those cheap valuations in emerging markets and a lot of positive fundamentals for emerging markets that started to appear in 2025, they are likely to continue in 2026.

A weak dollar, positive earnings revisions, the fact that you have an attractive way to access the artificial intelligence scene – all of those factors are positive for emerging markets. So you’ll probably see some global flows from global investors going to the emerging markets and some of that will come to SA as well. So I think that’s a positive.

Read: From grey list to growth: How SA is shaping up for 2026

And then the fact that the South African equity market has performed so well in 2025 puts us really on the radar screens of global investors and they’ll say: ‘Well, we haven’t looked at South African equities in quite a number of years. It’s been a good performance. Maybe it’s time for us to commit some money again to SA’.

I think all of those factors will work in our favour as far as South African equities are concerned in 2026.

JIMMY MOYAHA: Herman, before I let you go, I want to get your thoughts on how the rest of our global peers will fare. We are banking on South Africa, we’re doubling down on the performance of South African equities going into the new year.

Is there a secondary market perhaps for investors wanting a bit of offshore exposure that you are eyeing at the moment which might look attractive? We know the US valuation story continues, as you’ve just mentioned. Is there a secondary offshore market for those investors that want a bit of balanced exposure?

HERMAN VAN PAPENDORP: Yes, you have to be in the US. Let’s first say that, because the US is two-thirds of global equities, you’ve got to commit some capital to the US. But you probably will see your returns being less great in the US because of those valuations.

But in the rest of the developed markets, if you look at Europe, European growth is looking to pick up with some fiscal spending coming through in Germany, and that will probably go wider than just Germany.

Read: Emerging-market stock index hits five-year high

So from that perspective I think with the fiscal support that you’ll have for developed market equities outside of the US, you can commit some capital to that as well outside South Africa, as part of a diversified kind of portfolio.

China is a good play on the AI theme. So I think again that in emerging markets, China is the biggest emerging market weight.

So I think a combination of obviously having some US exposure, but then also starting to prefer some of the non-US developed-market exposure – and maybe some China and EM over and above the South African equity exposure – will be putting forward a good diversified portfolio which should withstand any risks that might be forthcoming from wherever they come.

JIMMY MOYAHA: So 2026 certainly promises to be an interesting a year, much like 2025 was. One has to look very carefully at one’s portfolio to see where these opportunities might present themselves and in which markets.

We will leave the conversation on that note. Thanks so much to the head of asset allocation at Momentum Investments, Herman van Papendorp, for joining us to take a look at their outlook going into the 2026 calendar year and where the opportunities could lie.

Follow Moneyweb’s in-depth finance and business news on WhatsApp here.