Global Market Overview
May delivered one of the more unusual monthly setups in recent memory. Financial markets and economic fundamentals moved in notably different directions. Risk assets rallied strongly despite a renewed inflation impulse, elevated geopolitical tensions from the ongoing conflict in the Middle East, and a change in Federal Reserve leadership. The divergence between what markets did and what the underlying data suggested became a defining feature of the month.
Global equities posted meaningful gains. The MSCI ACWI returned +5.16% in USD for the month, bringing the year-to-date figure to +12.15%. The MSCI World gained +4.55% in USD for May. Emerging markets led the field. The MSCI EM Index returned +9.69% in USD for the month, taking its year-to-date advance to +25.61%.
US equities were among the strongest performers globally. The S&P 500 advanced +5.23% in USD and the Nasdaq 100 surged +10.55% for the month. The Dow Jones Industrial Average crossed the 51,000 mark for the first time, supported by another round of exceptionally strong AI-related earnings. The investment team noted that AI is now delivering tangible revenue and profit growth — a structurally more durable earnings dynamic than the previous technology cycle. Q1 2026 was shaping up as one of the strongest earnings seasons of all time, with AI matters proving more significant than oil from historic, economic and equity compositional standpoints. Strong US corporate earnings momentum reinforced a pro-risk stance, with mega-cap technology remaining the dominant driver while broad earnings growth looked healthy in a still resilient US economy. By mid-month, AI-driven earnings upgrades led to a strategic upgrade of developed market equities, with high yield downgraded to neutral as a preference for taking growth risk through stocks became more evident.
Japan was a standout performer. The JPX-Nikkei Index 400 gained +4.38% in USD for the month, taking its year-to-date return to +16.62%. Japan’s first-quarter GDP expanded 0.5% quarter-on-quarter and 2.1% annualised, comfortably ahead of expectations.
European markets were more subdued. The FTSE 100 returned -0.07% in USD for the month, constrained by softer domestic growth data and rising gilt yields. UK data pointed to a more mixed outlook, as the inflation impulse from the conflict in the Middle East proved less acute than feared, while signs of weaker growth became more pronounced. The May flash composite PMI fell to 48.5 from 52.6, slipping into contraction as services dropped to 47.9, while retail sales declined 1.3% month-on-month in April. UK headline CPI eased to 2.8% year-on-year in April from 3.3% in March, below the 3.0% consensus. The 10-year Gilt yield drifted up towards 5% by month-end, around levels last seen in 2008, as global energy-driven inflation fears and intermittent hike pricing weighed on the curve. The Hang Seng declined -1.80% in USD for the month, as sentiment toward Chinese risk assets remained cautious despite firmer trade data. China’s May data flow pointed to a still-fragile recovery, with domestic demand remaining soft even as policymakers maintained a supportive stance. Official manufacturing PMI stood at 50.0 in May, while non-manufacturing PMI improved to 50.1 and the composite PMI rose to 50.5.
Fixed income markets were less constructive than equities. While the Federal Reserve left rates unchanged, the April FOMC minutes revealed four dissents — the highest number since 1992 — highlighting growing disagreement around the appropriate policy path. The leadership transition added another layer of uncertainty, with Kevin Warsh assuming the role of Fed Chair following Jerome Powell’s departure. By month-end, market-implied probabilities of a rate hike during 2026 had risen materially, while the 10-year Treasury yield increased to roughly 4.47% from 4.28% at end-April. US inflation remained the dominant macroeconomic theme. Headline CPI accelerated to 3.8% year-on-year in April from 3.3% previously, marking its highest reading since 2023. Energy inflation rose to nearly 18% from 12.5% the month before. Annual PPI inflation reached 6.0% from 4.9%, with strength increasingly evident in services rather than being confined to energy. Global listed property declined marginally, with the S&P Global REIT Index returning -0.01% in USD for the month, though year-to-date the index remains up +9.94% in USD. Rising global bond yields continued to act as a headwind for the sector.
The investment team’s view is that the divergence between strong equity performance and deteriorating macroeconomic signals warrants continued attention. AI-driven earnings momentum remains a genuine structural support, but the combination of rising inflation, tighter financial conditions and geopolitical uncertainty in the Middle East represents a meaningful set of risks that equity markets appear, for now, to be looking through.
South African Market Overview
South African markets delivered a mixed but broadly resilient performance in May. The most significant domestic event was the South African Reserve Bank’s Monetary Policy Committee meeting. At its 28 May meeting, the MPC raised the repo rate by 25 basis points to 7.0% — lifting the prime lending rate to 10.5%. This was the first hike since May 2023, and the vote was split 4–2, reflecting differing views on how aggressively to respond. Governor Kganyago noted that hopes for a swift end to the Middle East crisis had faded, leaving oil fluctuating around $100 a barrel, and acknowledged that the economy faced a difficult combination of weaker disposable income and heightened global uncertainty that would weigh on both investment and household consumption. Inflation moved as forecast. Headline CPI rose to 4.0% in April, driven largely by an 11% increase in fuel prices. The SARB now expects inflation to average 4.4% in 2026 and 3.7% in 2027 before returning towards the 3% target in 2028 — a notable upward revision from the disinflationary path projected at the start of the year. The policy stance has shifted meaningfully away from the easing bias that characterised the early months of 2026.
Against this more challenging domestic backdrop, the Rand held firm. The USD/ZAR exchange rate moved from R16.67 to R16.23 over the month, a strengthening of 2.67%, with the EUR/ZAR and GBP/ZAR also firming by 3.26% and 3.73% respectively. Currency support was driven more by broad emerging market momentum than by domestic fundamentals alone.
Local equity markets came under modest pressure. The FTSE/JSE All Share Index returned -0.27% in ZAR for May, with the year-to-date return standing at +0.76% in ZAR. Leadership within the local market was concentrated and divergent.
Company-level performance on the JSE was mixed, with leadership concentrated in selected resources, luxury goods, diversified miners and telecommunications shares, while pressure was more evident in selected investment holding companies, energy counters and China-linked technology exposure.
South African bonds were a standout performer. Public market reviews show the FTSE/JSE All Bond Index returned approximately +2.86% in ZAR for the month, while SA Listed Property gained +0.62% in ZAR and the STeFI Composite returned +0.56% in ZAR. The bond market’s constructive response to the SARB’s rate hike reflected the fact that the increase was broadly anticipated and priced in ahead of the announcement.
The investment team noted that the rate hike cycle, while a near-term headwind for growth, reflects a SARB that is actively defending its inflation credibility — a stance the team views as ultimately supportive for South African fixed income and currency stability over the medium term.
Key Insights from Weekly Investment Team Meetings
- AI earnings remain the dominant global equity driver. The investment team maintained a constructive view on technology-oriented global equities throughout May. The AI boom is characterised by almost all profit growth and almost no multiple expansion — a structurally different and more durable profile than the 1990s technology cycle, where multiple expansion drove nearly all the return. This distinction underpinned the team’s decision to increase technology exposure during the month.
- Markets are looking through geopolitical and inflation risk — but the team remains alert. US stocks hit records amid ongoing Middle East supply disruptions, with strong corporate earnings being the key reason behind outperformance. AI is now delivering tangible revenues, allaying worries over outsized capital spending. The team’s view is that this dynamic provides support in the near term, but that the combination of rising inflation and tightening financial conditions represents a risk that warrants careful monitoring.
- Emerging markets outperformance has structural support. The investment team increased exposure to EM-oriented opportunities during the month, in line with a view that EM outperformance in 2026 is supported by structural themes including AI infrastructure investment and a more balanced global growth outlook. In EM, India sits at the intersection of multiple mega forces, while in DM, Japan’s inflation and corporate reform story remains compelling.
- Technology weighting was increased; commodity exposure was selectively reduced. During May, the investment team raised technology exposure in offshore-oriented portfolios to a neutral weighting, funded by reductions in industrials and consumer cyclicals. Following the reduction of gold mining exposure, speculative positions in AI-thematic equities were added to capture earnings momentum in the sector where conviction was highest.
- The SARB’s rate hike marks a meaningful shift in the domestic cycle. The first SA rate hike since May 2023 signals that the energy shock is being taken seriously by policymakers. The team views this decision as reinforcing the SARB’s inflation-fighting credibility, which provides a more stable foundation for South African bonds even as the growth outlook softens.
- Risk scores held at neutral across all portfolios. Local funds and models remained at neutral risk scores of between 4.5 and 4.7, while the offshore fund also held at a risk score of 4.5, reflecting a deliberate balance between participating in equity market upside and maintaining protection against a macro environment that contains a growing number of unresolved risks.
Portfolio Performance and Strategy
The investment team maintained an overall neutral risk stance across portfolios through May. This positioning reflected a deliberate balance between capturing AI-driven equity momentum and managing the growing macro and geopolitical risks that equity markets are currently discounting.
The month’s most significant portfolio action was the reorientation of offshore equity sector exposure. Technology was increased to a neutral weighting at the expense of industrials and consumer cyclicals — a positioning shift aligned with May’s strong technology-driven market performance. Emerging market value exposure was also increased, alongside Asia-thematic positions, reflecting a view that the EM outperformance story in 2026 is supported by both cyclical and structural factors. Cash levels within offshore portfolios were reduced modestly, with the proceeds deployed into higher-conviction equity and EM positions.
On the fixed income side, the team navigated the SARB’s rate hike constructively. The South African bond market’s positive monthly return confirmed that credibility-anchored monetary policy can support bond performance even in a rising rate environment, provided the hike is anticipated and the inflation-fighting intent is credible. The team continued to hold an allocation to local bonds as both an income contributor and a portfolio stabiliser.
Within global fixed income, rising US Treasury yields and the shift in Fed leadership introduced additional uncertainty around duration. The team’s preference continued to favour shorter duration and selected non-US government bond exposure over extended US duration, in line with the view that the US rate path remains uncertain and asymmetric in its risks.
The team also considered broader structural themes reviewed during May’s investment committee meetings, including the relationship between oil dependency and vulnerability across major economies, and the implications of ongoing fiscal thrust and quantitative tightening on bond market normalisation. These themes informed a preference for diversification across geographies and return drivers, rather than concentration in any single market.
Overall, May reinforced the investment team’s conviction that the current environment rewards broad diversification, selective exposure to structural growth themes, and a disciplined approach to risk management. The team’s portfolios participated meaningfully in May’s equity gains through technology and EM positioning, while the neutral risk stance ensured adequate balance against an environment where the gap between market performance and macro fundamentals continues to widen.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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