Global Markets
Global financial markets delivered modest gains during the third quarter of 2026, as investors balanced resilient corporate earnings and economic activity against geopolitical tensions, rising energy prices and higher interest rates. July brought renewed uncertainty surrounding the US-Iran conflict and concerns about valuations in artificial intelligence (AI)-related companies, weighing on semiconductor shares. Markets recovered in August as earnings and AI investment supported risk assets, with several major equity indices reaching record levels. Sentiment weakened again in September when negotiations between the United States and Iran stalled and disruptions to Middle Eastern energy routes pushed Brent crude above US$100 per barrel. The resulting inflation concerns contributed to a sharp global bond-market sell-off. Despite this volatility, the MSCI World Index gained 1.9% in local-currency terms over the quarter. Market leadership remained concentrated in large technology and AI-related companies, while energy shares benefited from higher oil prices. Utilities and real estate underperformed as rising bond yields increased financing costs and reduced the relative appeal of income-generating assets.
In the United States, equities ended the quarter higher despite volatility and a widening gap between technology leaders and the broader market. The S&P 500 rose 2.3% and the Nasdaq Composite gained 2.6%, supported by resilient earnings, continued AI infrastructure investment and strong performance from large technology and communication services companies. The S&P 500 reached a record high in August, as investors responded to a broadly robust earnings season and shifted some exposure from semiconductor manufacturers towards hyperscalers and software businesses. However, concerns about the sustainability and profitability of AI spending, alongside new developments in Chinese AI, intensified competitive pressures during the quarter. Higher oil prices and Treasury yields towards the end of September weighed on interest-rate-sensitive companies, while the Dow Jones Industrial Average and smaller-cap shares lagged amid concerns about borrowing costs and consumer sentiment. The Federal Reserve raised its target interest-rate range by 25 basis points to 3.75%–4.00% in September, its first increase since 2023, and indicated that further tightening could be necessary if inflation persisted. Although core price pressures eased earlier in the quarter, higher energy costs and resilient economic data reinforced expectations that rates would remain elevated for longer. Earnings and AI investment continued to support US equities, but narrow market leadership and higher bond yields remained risks.
European equities underperformed many global peers as rising energy prices, government bond yields and political uncertainty weighed on sentiment. The STOXX Europe 600 reached a record high in August but ended the quarter down 1.1%, while France’s CAC 40 declined 5% over the quarter, reflecting pressure on major French companies amid concerns about public debt, political instability and the outlook for consumer-facing businesses. Germany’s DAX rose 0.8%, although higher borrowing costs and the September energy shock placed pressure on industrial and economically sensitive companies. Europe’s reliance on imported energy left it particularly exposed to renewed tensions in the Middle East, which pushed oil and natural gas prices higher. The European Central Bank, having held rates in July, raised its deposit rate by 25 basis points to 2.50% in September and warned that inflation could remain above target for an extended period. Economic activity proved more resilient than expected and purchasing managers’ surveys improved, although fiscal and political uncertainty, particularly in France, added pressure to sovereign bond yields. In the United Kingdom, the FTSE 100 Index gained 1.8% over the quarter, outperforming continental European markets for a seventh consecutive quarter. Its exposure to financial, energy and commodity-related companies, alongside attractive valuations and dividend support, helped offset wider uncertainty. The Bank of England held its policy rate at 3.75% in July and September but adopted a more cautious tone as inflation accelerated and higher energy costs threatened to add to price pressures. Overall, concerns about inflation, borrowing costs and political stability constrained European equities, while energy companies benefited from higher commodity prices.
Emerging-market equities ended the quarter slightly lower, with the MSCI Emerging Markets Index declining 0.4% in US dollar terms, although returns varied widely by country and sector. Performance followed three broad phases: a July reversal in AI-related shares amid geopolitical tensions, an August recovery supported by earnings and technology demand, and a weaker September as oil prices and global bond yields rose. Asian markets were particularly varied. Japan’s Nikkei 225 fell 4.1% over the quarter, despite a strong rebound on the final trading day of September, as semiconductor and technology shares remained sensitive to changing expectations for AI investment and global interest rates. China’s Shanghai Composite declined 6.2%, while Hong Kong’s Hang Seng Index gained 5.9%, highlighting the divergence between mainland and Hong Kong-listed equities. Hong Kong-listed technology and internet companies initially benefited from enthusiasm around AI developments, although gains were vulnerable to shifts in global risk appetite. Mainland equities remained constrained by subdued domestic consumption and persistent property-sector challenges. South Korea was among the weaker performers after semiconductor shares reversed part of their strong second-quarter advance, while Taiwan was more resilient on continued demand for advanced chips and the strength of major manufacturers. By September, higher oil prices and rising global bond yields weighed on sentiment across the region. Gold rose around 4% over the quarter to approximately US$4,157 per troy ounce, platinum gained 10% and copper advanced 8%, supported by supply constraints and demand linked to electrification and technology investment. Emerging-market returns therefore remained sensitive to global liquidity, commodity prices and the uneven distribution of AI-related investment.
Local Markets
South African equities ended the quarter slightly lower, with the JSE All Share Index declining 0.3%, although returns varied considerably across sectors. The FTSE/JSE Resources Index gained 16.6%, while the FTSE/JSE Financials Index fell 3.7% and the FTSE/JSE Industrials Index declined 10.4%. The FTSE/JSE Top 40 Index was marginally positive, returning 0.2%, while the FTSE/JSE SA Listed Property Index fell 1.1%. The divergence between resources and the industrial and financial sectors highlighted the influence of global commodity prices and uneven domestic growth on the local market. Naspers and Prosus also weighed on performance as Tencent shares declined. Domestic economic data presented a mixed picture, with second-quarter GDP contracting by 0.2% quarter on quarter, while July retail sales rose 3.4% year on year and manufacturing output increased by 1.1%. These contrasting developments underscored the challenges facing local equities, as strength in resources was offset by weakness in other major sectors and subdued economic growth.
South African bonds struggled to sustain their earlier recovery as rising global yields and renewed inflation concerns pressured fixed-income assets. The FTSE/JSE All Bond Index returned -0.7% over the quarter, with domestic yields moving higher as investors reassessed the interest-rate outlook following the increase in oil prices. The global bond sell-off intensified towards quarter-end as US Treasury yields rose sharply and major central banks adopted a more hawkish stance. South African government bonds faced additional pressure from the prospect of higher local inflation and the Reserve Bank’s policy decision. On 23 September, the South African Reserve Bank raised the repo rate by 25 basis points to 7.25%, taking the prime lending rate to 10.75%. The move reflected concerns that the global energy shock could lift inflation and trigger second-round price increases. Headline inflation rose to 4.4% in August from 4.3% in July, while core inflation eased to 4.1%. The Bank raised its near-term inflation forecasts and lowered its 2026 growth forecast to 1.2% from 1.4%. Although South African bonds continued to offer relatively attractive real yields, higher global yields and concerns about inflation and fiscal risks left the market vulnerable.
South Africa’s recovery lost momentum during the third quarter, although some indicators pointed to resilience in consumer demand and manufacturing. Statistics released in September showed that GDP contracted by 0.2% quarter on quarter in the second quarter of 2026, ending six consecutive quarters of expansion. Mining production fell 7.5% year on year in July, its third consecutive annual decline, with platinum-group metals, coal and iron ore among the largest negative contributors. Manufacturing output, by contrast, increased by 1.1% year on year, although the improvement was not broad-based. Retail trade sales rose 3.4% year on year in July, comfortably exceeding expectations, while the Absa Purchasing Managers’ Index reached 50.7 in September, moving above the 50-point threshold that separates expansion from contraction. However, manufacturing employment remained weak, purchasing-price pressures increased amid higher fuel and logistics costs, and delays at Durban port continued to disrupt supply chains. These constraints limited the benefits of stronger retail and manufacturing readings. While food inflation remained relatively subdued, transport and housing-related costs contributed to headline inflation rising to 4.4% in August. Higher oil prices threatened to push inflation above 5% later in the year. The Reserve Bank expects inflation to average 4.4% in 2026 before moving towards 3% by late 2027 but has lowered its growth forecast to 1.2%. Weak output, elevated borrowing costs and renewed external price pressures are likely to challenge households and businesses in the near term.
The rand was volatile during the third quarter, initially benefiting from improved risk appetite and strong precious-metal prices before weakening as the US dollar advanced and global bond yields rose. The currency traded below R16.00 against the US dollar in August, supported by a softer dollar, higher gold and platinum prices and the attraction of South Africa’s relatively high interest rates. Much of this strength reversed towards quarter-end as renewed tensions in the Middle East pushed Brent crude above US$100 per barrel, raising concerns about the country’s import bill and inflation outlook. The Federal Reserve’s September rate increase and expectations of further tightening also supported the dollar and reduced the appeal of emerging-market currencies. The rand ended the quarter at R16.4 against the US dollar, R18.6 against the euro and R21.7 against the British pound. Its weakness despite the Reserve Bank’s rate increase highlighted the influence of global risk sentiment and commodity prices on the exchange rate.
By 2IP (Independent Investment Partners)
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