HeatMap
MPS provider investment teams are asked how they expect to change their asset allocation over the next quarter.
Global markets enter 2026 amid cautious optimism and structural change. In equities, developed markets face elevated valuations and policy uncertainty, yet resilient earnings and early-stage AI investment underpin productivity and corporate growth. Emerging markets offer more attractive valuations, supported by improving earnings, a softer US dollar and targeted liquidity measures, which may provide support for SA equity.
For fixed income, desynchronised cycles across major economies create opportunities for active management. The US and UK are easing, the ECB is on hold, and Japan is still hiking, favouring selective positioning in high-quality bonds, EM fixed income and inflation-protected assets.
Several transformative forces are reshaping investment strategy: AI, which is driving global productivity and capital investment; fragmentation, which is altering trade, supply chains and energy dynamics; and potentially structurally higher, more volatile inflation, unless offset by AI-driven productivity gains. We prefer to stay diversified and maintain flexibility should circumstances shift suddenly and drastically.
In 2026, the world continues in a phase of economic uncertainty. The lack of clarity around US trade policy is amplifying global uncertainty, with knock-on effects for investment confidence and cross-border growth. While growth remains positive, it is increasingly uneven, supported by pockets of innovation and productivity gains rather than broad-based expansion.
In this environment, volatility is likely to remain a defining feature as investors reassess earnings durability, policy credibility and currency risks. Portfolio construction, therefore, needs to emphasise balance and resilience. Regional and asset class diversification remain central to navigating uncertainty. For South Africa, economic reform momentum and energy stability are supportive, but exposure to global shocks and fiscal constraints means flexibility and disciplined risk management remain essential.
We are feeling cautious on global equities and are being selective in our stock picking in favour of geographies that are still offering value and stocks with lower valuations. While we are not anticipating a market correction, we are less bullish than previously due to higher valuations in general. The US is the market we are most cautious on and are underweight most of the large tech stocks. Locally we are positive on the fundamentals in South Africa and expect more favourable conditions for SA stocks. We feel comfortable with SA and emerging market bonds and less so with developed market bonds. We expect interest rates to continue to fall, but at a slow pace. We are still not invested in property and don’t see that changing soon. We prefer gold miners to physical gold and have invested in some higher quality stocks when possible.
The fourth quarter was marked with high levels of volatility as investors aggressively changed their expectations for interest rate cuts by the Federal Reserve. Probabilities of a rate cut in December fluctuated from a high of 100% to a low of 30% with the Fed ultimately deciding to cut interest rates by 25bps on the 10 December.
Despite the Fed changing its tone to a hawkish one yet again, citing only one rate cut next year, its announced commitment to purchasing US Treasuries over the next few months is particularly bullish given the quantitative easing effects that are expected to follow. As a result, we remain bullish on equities particularly in emerging markets which continue to trade at lower multiples. Furthermore, we believe the rally in precious metals is far from over as we expect several nations to continue shifting their Treasury reserves away from US Treasuries to commodities.
Elevated geopolitical risks going into 2026 are likely to be offset by strong global monetary and fiscal policy support. This means global economic growth may improve from the current ‘soft-landing’ status into a much more favorable economic-expansion scenario.
For a Regulation 28 compliant portfolio this suggests growth assets have policy protection from the US, Europe, Japan, China and South Africa.
Therefore, we expect to increase our growth assets in favour of SA equities, China equities, emerging market equities, SA real estate, global real estate, global commodities and global gold.
Global monetary policy is likely to remain stable, supporting fixed income duration risk in 2026; enough to sustain our present high conviction towards longer-dated nominal and inflation-linked bonds.
Our defensive strategy for 2026 remains focused on developed market quality and developed market growth managers, complemented by gold and developed market bonds.
From an offshore perspective, we continue to view emerging market equities as the most attractive asset class going into 2026. A weaker US dollar, driven by structural and cyclical factors, is likely to have positive implications for EM equities relative to developed market equities, as has often been the case in the past. In addition, EM earnings revisions have turned broadly positive, while EMs have also become an attractive way to access the global AI investment theme. Although EM AI valuations have caught up with their DM counterparts, the growth rate expected from EM AI companies is significantly higher.
On the local front, we continue to favour SA equities. The recent strong performance may help rekindle long-dormant foreign investor interest in SA equities, as has already been the case for SA bonds. Furthermore, an increased allocation to EM equities by global investors could simultaneously result in significant global inflows supporting SA equities, particularly given that SA has historically been a high-beta play on EM equities. Despite the strong resource-driven rally in 2025, the SA market, as a whole, remains attractively valued against global peers and its own history.
We are taking a cautious stance due to rising uncertainty. While growth drivers may persist for global equities, risks to the downside continue to accumulate. These risks are currently being offset by looser US monetary policy, inflation remaining anchored and growth intact. Emerging markets and China offered fair risk-adjusted opportunities in their equity markets.
Global equities enter 2026 after a powerful three-year rally driven by strong earnings, moderating inflation and accelerating AI-related productivity gains. The US remains the engine of global markets, supported by a pro-growth policy mix and robust corporate profitability. These factors suggest the bull market may still have room to run, particularly if earnings broaden beyond mega-cap AI leaders.
However, risks are building. Valuations are stretched, market leadership remains narrow, and any reversal in disinflation could force central banks to slow or pause rate cuts. Geopolitical tensions, elevated debt levels, and signs of speculative investor behaviour also introduce late-cycle fragility. Outside the US, Europe continues to lack catalysts, while emerging markets remain tied to China’s uneven momentum.
Overall, the backdrop remains constructive but increasingly delicate. Staying invested while focusing on quality, earnings durability, and maintaining flexibility for potential pullbacks remains the most balanced approach for early 2026.
Global markets look increasingly vulnerable to geopolitical and geo-economic shocks, as well as earnings disappointments. Although the most recent earnings season showed resilience, equities are facing elevated hurdles amid extreme growth expectations. The tech and AI boom is likely to continue driving performance, but will be under increased scrutiny given elevated valuations and unprecedented levels of capex. Global liquidity is still relatively supportive at least, and growth continues to surprise, with some additional tailwinds over the coming year.
Locally, the equity rally has been very narrowly driven, predominantly by the gold and platinum miners. Locally-focused companies remain relatively muted and priced for little growth, setting a low base for positive surprises. The impact of reform progress on activity and sentiment, along with lower inflation expectations and lower borrowing rates, is likely to support returns going forward.
We remain close to neutral on growth assets and maintain well-diversified portfolios. We have added some additional value exposure in the portfolios, and continue to tilt towards active management in the current environment.
We are positioning portfolios with a good level of diversification, while continuing with allocations that reflect our constructive view of growth assets. This is on the back of expectations for a softer interest rate environment and positive economic growth outlooks, while being mindful of unexpected macroeconomic or political risk factors.
South Africa has seen several positive tailwinds, and local bonds have been swift to price the good news in. The valuation of this asset class is, however, far less attractive than it has been, and we continue to trim exposure.
Locally, we expect performance to be broader-based than last year and active managers to benefit going forward. Offshore, we remain cautious of hefty valuations and increased concentration in technology as a sector specifically. Our portfolios are spread into emerging markets and foreign property to reduce some of the overall exposure as a result.
For Q1 2026, our asset allocation remains moderately defensive with a preference for selective risk-taking. In fixed income, we maintain a shorter-duration stance as higher US issuance and tariff-related inflation may keep long-end yields elevated. We prefer high-quality credit where real yields remain attractive.
In equities, we continue rotating toward value and quality factors, given stretched growth valuations and a maturing US market cycle. Emerging markets offer improving risk-adjusted opportunities supported by better currency dynamics and more reasonable entry points.
We remain constructive on alternatives, particularly hedge funds, private credit and real assets, which continue to provide uncorrelated returns and meaningful downside protection.
Within South Africa, strong 2025 gains leave local assets more fairly valued, prompting us to trim long-duration bonds and reallocate selectively offshore, while maintaining balanced exposure across equities, fixed income and alternatives.
As we enter the first quarter of 2026, we remain constructively positioned in equities, with a continued emphasis on the US. Equity markets are being supported by easing interest rate expectations and ongoing investment, particularly in growth-oriented sectors. That said, we are mindful of emerging signs that the US economy may slow in the new year. Inflation remains higher than ideal and there are early indications that the labour market could soften. We are therefore closely monitoring incoming economic data and corporate earnings and stand ready to adjust portfolio positioning should risks increase.
The outlook for South Africa is comparatively encouraging. A weaker US dollar and sustained strength in commodity prices have improved the country’s position and supported the rand. Inflation remains well controlled, creating scope for a more supportive interest-rate environment. While economic growth is still modest, these factors provide a constructive backdrop for selected local opportunities. As always, our focus remains on balancing opportunity with prudent risk management.
2025 was a good year for growth assets, especially in the domestic market. Local equities soared on the back of higher commodity prices, property companies shot up and bonds rallied, driven by the lower inflation environment and SA’s removal from the greylist. Globally, equities did well in dollars but were behind SA equities. Global fixed income produced muted returns, and the stronger rand lowered returns for SA investors.
The disparities between SA and global assets tilted valuations in favour of offshore markets. This, coupled with better growth prospects, made offshore investments more attractive. To take advantage of this, our solutions lessened their allocation to SA winners like resources and long-dated bonds and allocated to global equities and bonds. While we are keeping this position into 2026, we are in the process of reviewing it.
MitonOptimal’s outlook for Q1 2026 reflects a market environment that is transitioning away from the narrow, tech-dominated surge of 2025 toward a broader, more rotational phase. We noted weakening momentum in global equities, particularly in the Nasdaq, where key support levels are being tested. This signals that 2026 may see further consolidation in mega-cap tech as earnings expectations normalise. We expect volatility around major catalysts such as Nvidia’s results and the durability of US consumer demand, while the rotation toward materials, energy, healthcare and gold is likely to strengthen as financial repression, high government debt and de-dollarisation trends accelerate.
Gold remains a high-conviction asset going into Q1 2026, supported by central bank buying – especially China’s undisclosed purchases – and structural demand. Commodities, more broadly, should benefit from supply constraints, with platinum group metals, copper and energy displaying improving long-term outlooks.
South Africa enters 2026 from a position of increasing strength. The breakout in SA bonds, improved fiscal credibility, a stable-to-strong rand, and better corporate earnings revisions support continued resilience in SA equities and listed property. Rotation into financials and quality domestic names is expected to continue, while any volatility is viewed as an opportunity to add selectively at favourable levels.
Our 2026 positioning will need to balance a combination of risks and opportunities. On the risk side, we remain vigilant about the prospect of persistent inflation, which could place renewed upward pressure on long-term yields. Geopolitical uncertainty and US political risks associated with potential policy shifts under a Trump administration also warrant caution. In addition, the pronounced concentration of US equities in a handful of mega-cap names heightens vulnerability should investor sentiment change. Finally, the Federal Reserve faces mounting pressure to ease policy, and any unexpected developments in growth or inflation could lead to market volatility.
These risks are counterbalanced by constructive factors, including valuations outside the US appearing to offer more value, global earnings expectations continuing to trend positively, and monetary policy remaining broadly accommodative across major economies.
In this environment, we believe the most prudent course is to maintain a well-diversified multi-asset portfolio that preserves flexibility and optionality. Should the US equity market experience a derating in the short term, we would view it as an opportunity to add to risk assets across portfolios. More broadly, successful navigation of 2026 will require a heightened degree of tactical responsiveness.
Global markets have remained volatile, driven by policy uncertainty, geopolitical risks, and uneven growth signals. The US government shutdown and patchy inflation data have complicated the Federal Reserve’s policy path, even as markets anticipate further rate cuts and an end to quantitative tightening. Fiscal stimulus in major economies has cushioned tariff impacts, but China’s economic indicators remain weak, while commodity markets are mixed; gold rallied on uncertainty, oil softened.
Locally, improved sentiment, moderating inflation and structural reforms have supported capital inflows and a stronger rand. Inflation expectations near the 3% target should allow gradual monetary easing. Coupled with a stronger exchange rate, this should help alleviate consumer pressures and encourage increased credit uptake, spending and investment. Higher commodity prices and operational efficiencies underpin a healthier fiscal base and industrial growth.
Volatility and policy divergence are likely to persist into 2026. While we aim to look past short-term noise and remain focused on long-term outcomes, heightened uncertainty brings increased volatility. We maintain conviction in our strategic asset allocation as an important anchor to achieve those outcomes but also value the role of cash both locally and offshore as a diversification tool and for the flexibility it provides to take advantage of market dislocations.
