Wendy Myers | Head | Securities | PSG Wealth | mail me |
As we settle into the second half of 2026, global market returns continue to reflect themes pulling markets in different directions.
There has been an almost unprecedented combination of geopolitical tension, volatile oil prices, persistent inflation and uncertainty over interest rates. Added to this are the extraordinary gains delivered by Artificial Intelligence (AI). These gains have become concentrated in a small number of large companies.
Against this backdrop, it is increasingly apparent that uncertainty is now a permanent condition. Local investors should stop treating volatility as a temporary disruption. Instead of seeking certainty, they should construct portfolios capable of withstanding a range of market outcomes.
Geopolitics is hitting home
Geopolitical outcomes are becoming harder to predict. However, their consequences for South Africa are not remote. As a net importer of oil, the country remains vulnerable to sustained increases in global energy prices.
These increases can affect transport and production costs, consumer spending, the rand, and inflation risk. These effects have direct implications for several Johannesburg Stock Exchange (JSE) sectors, both positive and negative.
Investors should therefore avoid reacting to short-term news. Instead, the more useful question is how a geopolitical development changes the earnings outlook for the companies they own. Diversification remains key when geopolitical developments create uncertainty across markets and sectors.
AI remains important, but price is pivotal
AI is one of the defining investment themes of our time. Infrastructure investment in semiconductors, cloud platforms, data centres and energy supply is expected to account for more than half of the growth in 2026. Therefore, AI remains a strong structural opportunity for long-term investors.
However, investors should distinguish between the long-term opportunity presented by AI and the price they pay for individual shares. Strong rallies in US technology and AI-related companies have resulted in elevated valuations and increased market concentration. Investors who enter only after significant price appreciation risk buying into excessive optimism. They also expose themselves to sharp corrections.
Rather than seeking blanket exposure, investors should focus on companies with sustainable earnings and strong balance sheets. They should also look for a credible route from AI investment to profitability. Diversification remains key because investors can capture AI’s structural opportunity without concentrating excessive portfolio risk in a small number of shares.
Chasing returns is chasing your tail
Investors often react to volatility by selling assets after they have fallen. Alternatively, they buy sectors after those sectors have rallied. This behaviour can result in repeatedly purchasing at high prices. It can also lead investors to abandon investments at the wrong time.
The recent excitement around SpaceX is a case in point. Investors should be wary of extrapolating the resilience of US technology stocks indefinitely. The speed with which US markets have recovered from recent downturns demonstrates the strength of the underlying companies. However, risks remain where valuations are high. Risks also remain when performance depends on a relatively small group of large technology shares.
Rather than chasing returns, investors should consider limiting exposure to any single stock to around five percent. This can reduce the effect of volatility on the portfolio. A robust portfolio should remain diversified across asset classes, sectors and geographies. It should also include dividend-paying defensive shares that can help cushion volatility.
Diversification protects amid uncertainty
What 2026 has shown is how easy it is to follow the herd, with fear driving investment decisions. Diversification remains key, particularly across geographies.
For South Africans, offshore investment provides access to a broader pool of quality companies. It also reduces dependence on domestic political and economic outcomes. However, this does not mean abandoning South African assets.
The JSE continues to offer opportunities in selected sectors. Local investments can also benefit when the rand strengthens, or domestic conditions improve.
The allocation between local and offshore assets should depend on an investor’s objectives, time horizon and risk tolerance. Investors should not base this allocation on a short-term prediction about the rand.
Resilience matters more than certainty
Successful investing in the remainder of 2026 will depend less on forecasting the next crisis. Instead, it will depend more on maintaining a resilient allocation with a long-term mindset.
The investors most likely to succeed in this environment of permanent uncertainty will not necessarily be those who correctly anticipate the next crisis. Instead, they will be those whose portfolios do not depend on them doing so.
