QUARTERLY MARKET INSIGHTS | Q2 2026

At MitonOptimal we take asset allocation (AA) very seriously, taking into consideration both Strategic AA (3-7 years) and Tactical AA within the various asset classes. This quarterly piece provides insight into our short term tactical calls on a 12-month view (reviewed quarterly) and as such may diverge from our long term strategic AA views. We review our strategic AA bi-annually as we believe this is prudent practice, in a world dominated by debt de-leveraging, central bank and political interference.

Q2 2026 was defined by a single event that arrived early, dominated market sentiment for several weeks, and then rapidly reversed — a Middle East-driven oil price shock that pushed Brent crude above $120 per barrel before collapsing back toward the low $70s following a ceasefire that reopened the Strait of Hormuz. The reversal occurred in mid-June, but not before it had triggered a meaningful inflation scare across developed and emerging market economies alike.

Against this volatile backdrop, asset class performance diverged sharply. Global equities delivered strong quarterly returns, led by US and developed market equities. South African listed property and bonds performed well in ZAR terms. Domestic equities underperformed, dragged lower by commodity sector weakness and foreign selling. Commodities were the clear laggard. Cash provided stability but lagged most risk assets in ZAR terms.

The quarter’s dominant question was not whether markets would survive the oil shock — they did, quickly — but whether the inflation narrative it briefly revived would have a lasting impact on central bank policy. For most of Q2, the answer proved to be: temporarily disruptive, but ultimately transitory.

Q2 2026 Asset Class Performance Summary

Source: Morningstar in ZAR

*POSITIONING: Overweight / Neutral / Underweight indicates the MitonOptimal asset allocation views

**PERFORMANCE: Outperformed / Neutral / Underperformed indicates the asset class performance over the quarter

Global Market Overview

The dominant regime of Q2 2026 was geopolitical disruption followed by rapid policy recalibration. The quarter began with markets already navigating elevated uncertainty from Middle East tensions. When Brent crude spiked above $120 per barrel in late April and May, the inflation shock was immediate and broad-based. US CPI reached 4.2% — a three-year high. The European Central Bank delivered its first rate hike since 2023 as HICP inflation reached 3.2%, even as Eurozone growth forecasts were revised lower to 0.8%. The Bank of Japan raised its policy rate by 25 basis points to 1.00%, its highest level since 1995. Central banks were broadly characterised as becoming reactive rather than proactive across the quarter.

Then came the reversal. The mid-June ceasefire reopened the Strait of Hormuz, and oil prices collapsed to the low $70s. By quarter end, inflation expectations were unwinding, and the case for additional tightening had materially weakened. The investment team’s assessment throughout — that the inflation spike was primarily fuel-driven and transitory rather than structural — proved well-founded.

Global equities performed strongly over the quarter despite the volatility. The MSCI ACWI returned +14.93% in USD, the MSCI World +13.76%, and the S&P 500 +15.10%.

The AI and technology earnings narrative retained credibility throughout the quarter. Unlike the speculative multiple expansion of the 1990s internet boom, current AI-related gains are supported by actual earnings growth. S&P 500 earnings revisions remained positive and corporate leverage continued to improve. However, market leadership remained narrow and highly concentrated, with capital rotating aggressively between semiconductor, memory and AI-related names — a dynamic the investment team flagged as a structural risk across multiple committee meetings.

Emerging markets delivered the standout quarterly return, with the MSCI EM Index up +24.05% in USD. This strong performance reflected improving fundamentals across parts of Asia and a recovery in investor sentiment. The investment team maintained an underweight position in emerging markets for much of the quarter, and this positioning represented the most significant opportunity cost of the period.

Currency markets were influential throughout Q2 2026. The US Dollar strengthened materially — the investment team assessed the Dollar’s break higher as technically significant, with a move toward the 105–106 level on the DXY discussed as plausible. Dollar strength created headwinds for commodity-linked assets and pressured some emerging market currencies. The Japanese Yen was identified as a potentially significant macro risk globally: the team viewed the risk of a disorderly carry-trade unwind as having the potential to generate broad spillovers across global bond and equity markets, and this concern grew in intensity toward quarter end.

Commodities delivered the weakest quarterly return of any major asset class, with the Bloomberg Commodity TR Index falling -8.08% in USD and -11.99% in ZAR. This decline occurred despite constructive supply-demand fundamentals. US and Chinese strategic petroleum reserves remained depleted. Precious metals faced apparent supply deficits. Yet prices fell materially across oil, gold, platinum, iron ore and industrial metals. The investment team described this as a persistent disconnect between commodity fundamentals and price action. The commodity super-cycle thesis was a recurring discussion theme in the April and May investment committee meetings, but the team chose to maintain rather than add to commodity exposure given the weakness in near-term price momentum.

South African Market Overview

South African assets delivered a mixed but broadly constructive quarter when viewed across the full asset class spectrum — with the notable exception of domestic equities.

The FTSE/JSE All Share Index returned -2.36% in ZAR for Q2 2026. The JSE’s resource-heavy composition became a significant headwind as commodity prices fell broadly. Platinum declined approximately -19% over the quarter. Gold, iron ore and diversified miners also contributed negatively to index performance. Foreign selling of South African equities added to the pressure. The domestic equity market underperformed global peers by a wide margin for both the quarter and the year-to-date.

The SARB entered Q2 2026 with the repo rate at 6.75%. At its 28 May MPC meeting — in a split decision of four votes to two — the Committee raised the repo rate by 25 basis points to 7.00%, effective 29 May 2026. This was the first rate increase since May 2023. The decision reflected the SARB’s concern about rising inflation expectations driven primarily by the fuel price shock: headline CPI rose from 3.1% year-on-year in March to 4.0% in April — largely on the back of an 11% increase in fuel prices — before reaching 4.5% by June. Core inflation remained more contained throughout the quarter at 3.8%. The hike was broadly anticipated and priced in by markets ahead of the announcement, which explains the bond market’s constructive response. The SARB revised its inflation expectations to average 4.4% in 2026 and 3.7% in 2027, before returning toward the 3% target in 2028. South Africa’s Q1 2026 GDP growth came in at 0.5% quarter-on-quarter — modest but positive — although the IMF lowered its full-year 2026 SA GDP forecast from 1.4% to 1.0%.

South African listed property delivered a remarkable +10.03% in ZAR — the strongest domestic asset class return of the quarter. The asset class benefited from recovering investor appetite for income-generating assets as energy-driven inflation fears began to unwind following the ceasefire, even as the SARB rate hike introduced some near-term rate headwind. The broadly anticipated nature of the hike meant markets had largely absorbed the move before it occurred.

South African bonds delivered a positive quarter, with the FTSE/JSE All Bond TR returning +7.87% in ZAR. The performance reflected the bond market’s ability to price the rate hike well in advance, the continued containment of core inflation, and improving fiscal credibility. The yield curve remained broadly stable, providing consistent carry throughout the period.

The South African Rand remained unexpectedly resilient throughout Q2 2026 — a dynamic the investment team described repeatedly as difficult to reconcile with the broader fundamental picture. Despite a strengthening US Dollar, falling commodity prices, foreign equity selling, a domestic rate hike and ongoing political uncertainty, the Rand held its ground. This resilience provided a degree of natural protection for portfolios with offshore exposure when performance was measured in ZAR terms.

SA EQUITY

Positioning: Underweight | Performance: Underperformed| -2.36% ZAR/ +1.98% USD

South African equities underperformed during Q2 2026. The FTSE/JSE All Share TR returned -2.36% in ZAR for the quarter, driven primarily by commodity sector weakness and foreign selling. The JSE’s material exposure to platinum group metals, gold and diversified mining groups meant the global commodity decline translated directly into domestic equity underperformance. Portfolios entered the quarter with an underweight position in South African equities — a stance that contributed positively to relative outcomes in a quarter where domestic equities underperformed all other major domestic asset classes by a significant margin.

SA LISTED PROPERTY

Positioning: Neutral | Performance: Outperformed | +10.03% ZAR / +14.91% USD

SA listed property was the standout domestic performer, returning +10.03% in ZAR for Q2 2026. The asset class delivered this outcome despite the SARB raising the repo rate by 25 basis points to 7.00% during the quarter — a move that had been well flagged and broadly priced into markets before the announcement. Recovering investor appetite for income-generating assets and the moderation of energy-driven inflation fears following the ceasefire were the primary drivers. Portfolios maintained a neutral position in SA listed property during the quarter. The strong outperformance of the asset class meant that a more constructive positioning would have added incremental value. The team acknowledged the improving property outlook during the period but maintained a neutral stance given the residual uncertainty in the early part of the quarter.

SA FIXED INTEREST

Positioning: Neutral | Performance: Neutral | +7.87% ZAR / +12.66% USD

South African bonds returned +7.87% in ZAR for Q2 2026. Notably, this positive return was delivered in a quarter during which the SARB raised the repo rate by 25 basis points to 7.00% at its 28 May MPC meeting — the first rate hike since May 2023. The market’s constructive response reflected that the move was broadly anticipated and priced in well ahead of the announcement. Core inflation remained contained at 3.8%, which provided reassurance that the tightening cycle was measured and data-dependent rather than aggressive. The yield curve remained broadly stable throughout the period, providing consistent carry. Portfolio positioning in SA fixed interest was neutral. The asset class served its stabilising function effectively, contributing positively to total returns and providing a meaningful buffer against equity market volatility.

SA CASH

Positioning: Overweight | Performance: Underperformed | +1.67% ZAR / +6.18% USD

Cash as measured by the STeFI Composite returned +1.67% in ZAR for Q2 2026 — positive but modest relative to the stronger returns delivered by property, bonds and global equities. The SARB’s rate increase in late May provided a marginal uplift to short-duration returns toward quarter end. Portfolios maintained an overweight position in South African cash throughout the quarter, reflecting the team’s broadly cautious risk assessment and the view that the carry advantage of short-duration instruments remained meaningful in the context of elevated geopolitical and inflationary uncertainty. While the overweight in cash limited participation in the stronger returns delivered by other asset classes, it provided the portfolio with liquidity and the flexibility to act when opportunities arise.

GLOBAL EQUITIES

Positioning: Overweight | Performance: Outperformed| 10.04% ZAR / +14.93% USD

Global equities outperformed during Q2 2026, with the MSCI ACWI returning +14.93% in USD — a strong quarterly result supported by AI-driven earnings resilience and the rapid reversal of the oil-driven inflation shock. Portfolio positioning in global equity was overweight. The team retained global equity exposure throughout the quarter without adding to concentrated technology positions, consistent with its view that the AI earnings story remained credible but that current valuations did not warrant an aggressive increase in risk. The overweight position captured broad market gains while avoiding the concentration risk inherent in benchmark-heavy technology exposures.

GLOBAL PROPERTY

Positioning: Underweight | Performance: Neutral | +6.35% ZAR / +11.08% USD

Global listed real estate returned +11.08% in USD for Q2 2026, recovering from earlier rate-related headwinds as inflation expectations moderated following the Middle East ceasefire. Portfolios maintained an underweight position in global property during the quarter, and the neutral performance classification — in the context of a broad recovery — meant this underweight had a modest negative impact on relative outcomes. The team maintained caution given structural headwinds in some global property sub-sectors and ongoing uncertainty around long-term rate trajectories.

GLOBAL FIXED INTEREST

Positioning: Neutral | Performance: Underperformed | -4.06% ZAR / +0.20% USD
​

Global bonds underperformed during Q2 2026. The Ginsl Global Bond Index returned +0.20% in USD and -4.06% in ZAR as the energy-driven inflation spike pushed yields higher and bond term premiums increased. Yields failed to fall materially even after oil prices collapsed, reflecting broader uncertainty about the pace of disinflation and the direction of major central bank policy. Portfolio positioning in global fixed interest was neutral. This was appropriate given the uncertainty around both inflation and central bank policy at the start of the quarter.

GLOBAL CASH

Positioning: Overweight| Performance: Underperformed | -3.45% ZAR / +0.84% USD

Global cash returned +0.84% in USD and -3.45% in ZAR for Q2 2026. The negative ZAR return reflected the impact of Rand resilience on offshore cash holdings when translated back to the domestic currency. Portfolios maintained an overweight in global cash, consistent with the team’s cautious overall stance. While this positioning contributed negatively to ZAR-based returns during the quarter, it was intentional — the team’s view was that risk/reward across most risk asset classes did not justify reducing cash levels, particularly in the first half of the quarter when the oil shock was at its peak.

DEVELOPED MARKET EQUITIES

Positioning: Overweight| Performance: Neutral | +8.92% ZAR / +13.76% USD​

Developed market equities, as measured by the MSCI World NR, returned +13.76% in USD for Q2 2026. The overweight position in developed markets contributed positively to portfolio outcomes. US equity markets led developed market performance, supported by AI-driven earnings growth, resilient employment data and the rapid reversal of the oil-driven inflation shock. The investment committee’s decision in late April to reduce gold exposure and redirect capital toward US equities was consistent with the team’s growing conviction in the US market’s relative strength.

EMERGING MARKET EQUITIES

Positioning: Underweight| Performance: Outperformed | +18.78% ZAR / +24.05% USD​

Emerging markets delivered the strongest equity sub-asset class return of the quarter, with the MSCI EM NR returning +24.05% in USD for Q2 2026. The team maintained an underweight position in emerging markets, reflecting concerns about Dollar strength, commodity price weakness and selective geopolitical risks. This underweight represented the most significant opportunity cost of the quarter from a relative positioning perspective.

COMMODITIES

Positioning: Neutral | Performance: Underperformed | -11.99% ZAR / -8.08% USD
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Commodities were the clear underperformer of Q2 2026. The Bloomberg Commodity TR Index returned -8.08% in USD and -11.99% in ZAR. The dramatic oil price reversal post-ceasefire drove the bulk of the decline. Precious metals fell despite apparent physical supply deficits. Industrial metals including copper and iron ore also declined. The commodity super-cycle thesis was a recurring discussion theme across the April and May investment committee meetings — the team identified the structural case for higher prices, including depleted reserves, AI-driven copper demand and supply constraints in precious metals — but acknowledged that near-term price action did not support aggressive positioning. The neutral stance protected portfolios from the sharp quarterly decline.

CLOSING SUMMARY

The investment team entered Q2 2026 in a deliberately cautious stance, adopting a “wait and see” approach in response to the geopolitical uncertainty and oil price shock that opened the quarter. Cash levels were elevated above neutral. Portfolios were positioned with a modest underweight to South African equities, a slight overweight to developed market equities — particularly the US — and neutral exposure to global equities broadly.

As the quarter progressed and the oil shock showed signs of resolving, the team began making selective, measured additions to risk. Manager diversification in global equity allocations was increased, and exposure to US equities was added by trimming the gold position. These adjustments were incremental and deliberate, consistent with the team’s view that market leadership remained narrow and that valuation risk in developed market equities remained elevated.

By quarter end, with the ceasefire confirmed, the SARB rate hike absorbed without disruption, and inflation expectations beginning to unwind, the team concluded that the risk/reward of increasing equity risk was not sufficiently compelling. Valuations in US technology remained stretched. Emerging markets had delivered exceptional returns but the Dollar headwind persisted. The Yen carry-trade risk remained a live concern. The broadly cautious stance was maintained.

The investment team’s discipline — maintaining elevated cash, avoiding large tactical calls, and staying invested without concentrating risk — served its intended purpose in a quarter defined more by volatility management than by return maximisation. Q2 2026 was a quarter for measured positioning, patience, and the portfolio adaptability that allows clients to participate in market recovery without bearing the full weight of its disruptions.

• Overweight / Neutral / Underweight indicates the MitonOptimal asset allocation views
• Outperformed / Neutral / Underperformed indicates the asset class performance over the quarter

Source of all data: Morningstar.  Unless otherwise stated all local data is in ZAR and all offshore data is in USD.

Jacques de Kock

Quantitative Analyst & Portfolio Manager

The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness. MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider Licence No. 28160, regulated by the Financial Sector Conduct Authority (FSCA) – Registration No. 2005/032750/07.MitonOptimal Portfolio Management (Pty) Limited is an Authorised Financial Services Provider Licence No. 734, regulated by the FSCA – Registration No. 2000/000717/07.