Reza Hendrickse, Portfolio Manager at PPS Investments

The first quarter of 2026 started much as the previous year had ended; constructively. Non-US assets, emerging markets and South African risk assets continued to find support from moderating inflation, improving policy credibility and a broadly positive investor mood. That optimism, however, did not survive the quarter intact.

Everything changed in late February when the US and Israel launched strikes on Iran. What followed was swift and severe. This included retaliatory attacks across the Gulf, the near-total closure of the Strait of Hormuz (a chokepoint through which roughly 20% of global oil supply normally flows) and an oil price shock that the IEA has described as the largest supply disruption in the history of the global oil market. Volatility surged across asset classes, risk appetite deteriorated sharply, and markets were forced into a rapid and uncomfortable reassessment of the inflation, growth and interest rate outlook.

Markets

For most of the first quarter, markets were in reasonable shape. Performance had broadened beyond the narrow US mega-cap technology concentration that dominated the previous cycle, commodity prices had firmed, and emerging market assets were benefiting from attractive valuations and improving fundamentals.

South African assets shared in that strength early in the period, with resource counters and banks providing good support to domestic equities. That reversed sharply in March. The JSE ended the quarter slightly down (-0.5%), as the geopolitical shock overwhelmed the earlier gains. Interest-rate-sensitive assets also ended the period in negative territory, with bonds selling off as inflation risks were abruptly repriced.

Global equity returns were mixed this quarter. The MSCI All Country World Index fell in dollar terms, though it was roughly flat in rands as the dollar strengthened in the aftermath of the conflict. Markets outside the US generally held up better than their American counterparts, which faced the dual headwind of rising yields and elevated valuations.

By the end of the quarter, the rand had lost close to 5% against the US dollar, a move consistent with both the global risk-off environment and South Africa's specific vulnerability as a net oil importer. With both global oil prices and the rand working against local motorists simultaneously, April saw the largest fuel price increases in South Africa's history. This is a stark illustration of how quickly external shocks translate into real costs for South African households and businesses.

As we enter the second quarter, a brief ceasefire and signs of possible further US-Iran talks have provided some relief, with oil prices pulling back somewhat. But the situation remains fluid and unresolved, and the economic damage from the shock will take time to fully assess.

Portfolios

Against this backdrop, we remained disciplined and did not react to short-term headlines this quarter. That is easier said than done when events are moving as quickly as they did in March, but it reflects a deliberate and considered approach. Volatility of this kind, as unsettling as it feels in the moment, is a normal feature of long-term investing. Portfolios built for the long term should be able to absorb it without necessitating a change of course.

Our portfolios are well diversified across managers and asset classes, and that diversification has continued to earn its place. Offshore exposure cushioned local portfolios as rand weakness meant global assets fell by less in rand terms.

Looking ahead, we remain cautiously constructive but pragmatic regarding the risks. The energy shock could prove more persistent than markets currently assume. A ceasefire is not yet a peace agreement, and the secondary effects on inflation, consumer confidence, supply chains and monetary policy will take time to work through. South African assets continue to offer compelling valuations relative to many developed-market peers, but selectivity matters more than ever in this environment.

What has not changed is our approach: stay diversified, stay disciplined, and remain selective where volatility creates opportunity. Periods of dislocation can be uncomfortable to live through, but for patient investors, they are also the periods that tend to reward those who hold firm rather than retreat.