Global financial markets outperformed South African assets in the first quarter of 2026, as escalating geopolitical tensions triggered a sharp shift in investor sentiment and a flight to safety.
According to a latest market review, the Iran conflict emerged as the dominant force shaping returns in March and across the quarter, prompting a broad risk-off environment that weighed heavily on emerging markets and local assets.
The escalation from early-year tensions into a full-scale conflict at the end of February led to a reversal of earlier market trends. While January and February saw strong performance from South African and emerging market assets, March brought widespread sell-offs, with global markets benefiting from safe-haven flows.
The US dollar strengthened significantly during the period, placing additional pressure on the rand, which underperformed most emerging market currencies. This dynamic contributed to global assets outperforming South African assets in rand terms.
Cash emerged as the top-performing asset class globally during the quarter, highlighting the extent of investor caution. Global bonds also outperformed equities, while global property delivered relatively strong returns. In contrast, emerging market equities declined sharply during March, although gains earlier in the year allowed them to outperform developed markets over the full quarter.
Locally, the picture was more subdued. South African assets broadly underperformed, with only cash delivering positive returns over the period. Listed property was the worst-performing asset class, followed by nominal bonds and inflation-linked bonds.
Gold proved to be a relative bright spot, with strong dollar-based gains in the early part of the year supporting returns for resource-linked investments. This helped offset weakness in other sectors, leaving overall equity market performance only slightly negative for the quarter.
Despite the sharp market correction in March, analysts caution against overreacting to short-term volatility. Historically, geopolitical shocks linked to oil price spikes tend to be temporary, with markets often recovering within six months unless broader economic damage, such as a US recession, materialises. Current expectations suggest such a recession remains unlikely.
The sell-off also needs to be viewed in context, with many asset classes having delivered strong gains in 2025 and early 2026. By the end of March, several markets had simply retraced to levels seen a few months earlier, while remaining well above lows recorded in 2025.
Looking ahead, the outlook for South African assets appears more constructive. Improving domestic growth momentum, easing inflation, and the prospect of lower interest rates are expected to support local markets. In addition, South African equities are viewed as attractively valued relative to both historical levels and emerging market peers.
Listed property is also showing signs of recovery, supported by improving fundamentals and declining funding costs, while nominal government bonds are offering increasingly attractive real yields in a global context.
Globally, equities are expected to outperform bonds, underpinned by earnings growth and supportive fiscal conditions. However, developed markets, particularly the United States, may face valuation pressures, while emerging markets are seen as offering stronger value and earnings potential.
Analysts continue to emphasise the importance of diversification during periods of heightened uncertainty. Maintaining long-term investment strategies and avoiding reactive selling during market downturns remains critical, as historical trends show that such behaviour can lock in losses and erode long-term returns.