Cartesian Strategic Asset Allocation H2 '26

The Middle East energy shock rattled markets in early 2026, but we at Cartesian think it's changed the outlook far less than current pricing implies.

Our H2 2026 Strategic Asset Allocation view: inflation fears are overdone, further rate hikes are unlikely, and the SARB should hold at 7.00% through year-end. We stay constructive on SA Inc. equities, the front end of the bond curve, and quality listed property, while remaining cautious on domestic credit and patient on gold.

The shock has likely peaked, and markets are pricing more tightening than policymakers will deliver. One caveat since the report was finalised: renewed Strait of Hormuz tensions have pushed Brent above $85/bbl and pressured the rand, so oil and USD/ZAR are the key triggers we're watching.

The first half of 2026 proved to be a timely reminder that markets are often forced to distinguish between temporary shocks and lasting structural change. While the Middle East conflict and resulting energy shock disrupted the investment landscape, our assessment is that it has altered the path of markets far less than current pricing suggests.

In our latest Strategic Asset Allocation (SAA) Report for H2 2026, we examine why we believe inflation concerns have become overstated, why further rate hikes in both South Africa and the United States remain unlikely, and how investors should position portfolios to benefit as excess tightening expectations gradually unwind.

Our key conclusions include:

• We expect the South African Reserve Bank to keep the repo rate unchanged at 7.00% through year-end, with the remaining rate-hike premium in market pricing likely to fade over the coming months.
  
• We continue to favour the front end of the South African government bond curve, positioning for lower front-end yields as markets reassess the probability of further tightening.
• We remain constructive on SA Inc. equities, particularly banks and selected industrials, where valuations remain attractive and earnings prospects are supported by a stable interest-rate environment.
• We are positive on listed property, with a preference for high-quality retail, logistics and industrial assets offering reliable income and long-term growth potential.
• We continue to view domestic credit cautiously, as current spreads do not adequately compensate investors for the risks being assumed.
• While we retain a favourable long-term view on gold, we believe patience is warranted and would view further weakness as an opportunity to build exposure.

More broadly, we believe South Africa's relative investment case remains constructive. The GNU continues to provide a foundation for political stability, inflation pressures should moderate as the energy shock fades, and attractive valuations across several domestic asset classes continue to create opportunities for long-term investors.

Our central investment message for the second half of the year is simple:

The shock appears to have passed its peak. Markets are likely pricing more tightening than policymakers will ultimately deliver. Investors who remain disciplined, focus on quality assets, and maintain exposure to attractively valued South African opportunities should be well positioned for the period ahead.

One point worth highlighting since the report was finalised: our working assumption was that oil would continue flowing freely through the Strait of Hormuz. Since then, renewed tensions have lifted Brent above US$85/bbl and weighed on the rand.

Even so, we still believe there is a narrow window for the SARB to hold rates steady at 7% in July. Recent market pricing had started moving in that direction, supported by the Governor's comments that oil prices have moderated, as well as Goldman Sachs revising its call from a hike to a hold late last week.

For now, Brent crude and USD/ZAR remain the key triggers we are watching. A sustained move closer towards US$90/bbl and/or 17.00 respectively would see us temper our conviction for an interest rate Hold at the next meeting.

Please find the full report attached.

As always, should you wish to discuss how these views may affect your portfolio or investment strategy, please do not hesitate to contact us.

"Discipline, valuation and patience remain the cornerstones of successful investing."

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