Global Markets
Global financial markets staged an impressive recovery during the second quarter of 2026, rebounding strongly from the volatility that characterised the opening months of the year. Following a challenging first quarter dominated by the escalation of conflict in the Middle East and surging energy prices, investor sentiment improved materially as geopolitical tensions eased and optimism surrounding artificial intelligence (AI) continued to support global risk assets. The announcement of a ceasefire framework between the United States and Iran during June, together with plans to reopen the Strait of Hormuz, significantly reduced concerns over prolonged disruptions to global energy supplies. As oil prices retreated sharply from their March highs, inflation expectations moderated, allowing investors to once again focus on resilient corporate earnings and the long-term opportunities presented by AI-driven investment. Global equities responded positively, with the MSCI World Index returning 13.8% during the quarter, its strongest quarterly performance since 2020. Although market leadership remained concentrated within a relatively narrow group of AI beneficiaries, investor participation broadened as the quarter progressed, with cyclical sectors and smaller companies increasingly contributing to market gains.
In the United States, equity markets recorded one of their strongest quarters in recent years as resilient economic growth, stronger-than-expected corporate earnings and continued enthusiasm for AI-related investment underpinned investor confidence. The S&P 500 gained 15.2% during the quarter, while the technology-heavy Nasdaq Composite surged 21.6%, marking its best quarterly performance since the post-pandemic recovery in 2020. Much of the market’s advance continued to be driven by a handful of mega-cap technology companies, particularly those exposed to semiconductors, cloud computing and AI infrastructure, although gains became increasingly broad-based towards quarter-end as industrials, financials and smaller-cap companies also participated in the rally. Corporate earnings remained exceptionally strong, with technology and energy companies delivering the largest upside surprises, reinforcing confidence that AI-related capital expenditure remains in its early stages. Economic data also demonstrated remarkable resilience despite elevated geopolitical uncertainty, with labour market conditions remaining firm throughout the quarter. Against this backdrop, the Federal Reserve left interest rates unchanged but adopted a more hawkish tone under new Chair Kevin Warsh, highlighting persistent inflation risks and signalling that further policy tightening remained possible should inflationary pressures re-emerge. While this prompted investors to moderate expectations for future rate cuts, the combination of falling oil prices and robust economic fundamentals ultimately outweighed concerns over monetary policy, allowing US equities to finish the quarter at record highs.
European equity markets recovered strongly during the second quarter as easing energy prices alleviated many of the inflation concerns that had weighed heavily on the region during the first quarter. Germany’s DAX rose 10.2%, while France’s CAC 40 advanced around 9.5%, supported by easing geopolitical tensions and renewed confidence in the economic outlook as optimism surrounding technology and innovation broadened beyond the United States. Technology, financial and industrial companies delivered particularly strong returns, supported by robust corporate earnings and continued investment in AI. Conversely, energy stocks underperformed following the sharp decline in Brent crude oil prices after progress towards a ceasefire agreement between the United States and Iran reduced concerns over global energy supply disruptions. Economic growth across the eurozone remained subdued, with first-quarter GDP contracting by 0.2%, reflecting ongoing weakness in manufacturing activity and softer domestic demand. Nevertheless, the European Central Bank proceeded with its first interest rate increase since 2023, raising its deposit rate by 25 basis points to 2.25% during June. Policymakers acknowledged that inflation remained above target despite the improving energy backdrop while reiterating that future policy decisions would remain data dependent. In the United Kingdom, the FTSE 100 gained 4.0% during the quarter, with weakness in energy companies offsetting strong performances from financials, consumer discretionary and real estate stocks. Political uncertainty increased following Prime Minister Keir Starmer’s resignation after disappointing local election results, although markets remained largely focused on inflation developments and the Bank of England’s decision to leave interest rates unchanged at 3.75%.
Emerging markets outperformed developed markets during the quarter, delivering their strongest quarterly performance since 2009 as investors increasingly directed capital towards economies positioned to benefit from the accelerating global AI investment cycle. The MSCI Emerging Markets Index advanced 24.1%, driven largely by strong performances in Taiwan and South Korea, whose semiconductor industries remain central to global AI infrastructure spending. Taiwan’s advanced semiconductor manufacturers and South Korea’s memory chip producers continued to benefit from sustained demand generated by hyperscale data centre investment and next-generation computing technologies. Japan also ranked among the world’s strongest-performing equity markets, with the Nikkei 225 surging 36.2% over the quarter as exporters benefited from continued yen weakness and strong demand for AI-related technology. By contrast, China’s equity market delivered more subdued returns despite improving manufacturing activity and ongoing economic reforms. The SSE Composite Index gained 5.2%, supported by government initiatives aimed at advanced manufacturing, infrastructure investment and domestic technology development. However, Hong Kong’s Hang Seng Index declined 7.9% as technology companies remained under pressure from weaker earnings growth, ongoing property market challenges and heightened sensitivity to global investor sentiment. While broader emerging market performance became increasingly concentrated in AI-related sectors, the quarter highlighted the growing divergence between economies positioned at the centre of the global semiconductor supply chain and those more reliant on commodities or domestic demand.
Local Markets
South African financial markets experienced a volatile second quarter as global geopolitical developments continued to dominate investor sentiment. The escalation of conflict in the Middle East during April and May pushed oil prices sharply higher, placing pressure on domestic inflation expectations, bond yields and the rand. However, market conditions improved significantly during June as energy prices retreated and global risk appetite recovered following the announcement of a ceasefire framework between the United States and Iran. Despite the stronger finish to the quarter, the FTSE/JSE All Share Index declined 2.4% over the three months as substantial weakness in the resources sector outweighed solid gains in domestically focused shares. The FTSE/JSE Resources Index fell 19.7% amid a sharp correction in gold and platinum prices as safe-haven demand unwound following easing geopolitical tensions. By contrast, Financials gained 8.2% and Industrials advanced 4.2%, supported by stronger domestic fundamentals and growing confidence that inflation would moderate during the second half of the year. Listed property was among the strongest-performing local asset classes, with the FTSE/JSE Listed Property Index returning 10.0% as declining long-term bond yields and a more favourable interest-rate outlook boosted valuations across the sector.
South African bond markets recovered strongly after enduring significant volatility earlier in the quarter. Rising oil prices and inflation concerns initially pushed government bond yields sharply higher as investors demanded greater compensation for inflation risk. However, sentiment improved considerably during June as Brent crude prices retreated towards pre-conflict levels and both Moody’s and Fitch reaffirmed confidence in South Africa’s improving fiscal position, encouraging renewed investor demand for local bonds. Fitch upgraded South Africa’s sovereign credit rating to BB during June, citing continued fiscal consolidation, structural reforms in the energy and logistics sectors and a stabilising debt trajectory. The improved sovereign outlook contributed to a meaningful decline in long-term government bond yields, with the benchmark 10-year yield falling towards 8.4% by quarter-end after peaking above 9% earlier in the year. Consequently, the FTSE/JSE All Bond Index (ALBI) finished the quarter with a robust return of 7.9%, representing a sharp recovery from the weakness experienced during the first quarter. Foreign investor appetite for South African fixed income also improved materially, with overseas investors returning as net buyers of domestic bonds during June, reflecting the country’s attractive real yields and strengthening fiscal outlook.
From a macroeconomic perspective, South Africa continued to demonstrate resilience despite a challenging global environment. First-quarter GDP expanded by 0.5% quarter-on-quarter, exceeding market expectations and marking the strongest quarterly growth since the second quarter of 2025. Growth was supported by broad-based improvements across most sectors of the economy and a positive contribution from net exports, although weaker fixed investment continued to highlight the economy’s underlying structural challenges. Inflation accelerated during the quarter as higher global oil prices filtered through to domestic fuel costs, with headline consumer inflation rising to 4.5% in May. Transport costs were the primary contributor to the increase, while electricity tariff adjustments also added upward pressure. Encouragingly, food inflation remained subdued owing to favourable agricultural conditions and lower global food prices, helping to offset some of the energy-related inflationary pressures. Core inflation also moved modestly higher, reflecting the gradual broadening of price pressures across the economy. Against this backdrop, the South African Reserve Bank adopted a more cautious stance, raising the repo rate by 25 basis points to 7.0% during its May meeting. Policymakers emphasised that the decision was intended to contain second-round inflation risks while reaffirming that future policy decisions would remain dependent on incoming economic data and the trajectory of inflation.
The rand experienced considerable volatility throughout the second quarter as shifting global risk sentiment, higher oil prices and geopolitical uncertainty drove currency markets. The local currency weakened during April and May as investors sought the relative safety of the US dollar amid escalating tensions in the Middle East and expectations of tighter global monetary policy. However, the announcement of the US-Iran ceasefire framework, together with South Africa’s sovereign credit rating upgrades and improving domestic bond market performance, helped restore investor confidence and allowed the rand to recover much of its earlier losses. The currency ended the quarter at R16.4 against the US dollar, approximately 1% stronger than at the start of the year. Against other major currencies, the rand also strengthened over the first half of the year, ending June at R18.7 against the euro and R21.7 against the British pound.
By 2IP (Independent Investment Partners)
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