George Herman, Chief Investment Officer at Citadel

While global investors may be entering 2026 with caution, South African (SA) investors could look forward to a 30-year high in investor confidence because of five broad themes that work in the country’s favour, according to George Herman, Chief Investment Officer at Citadel.

“After a year defined by geopolitical uncertainty, shifting monetary policy cycles and rapid technological acceleration, the investment landscape is looking up,” says Herman. “The five major forces at play are solid emerging market (EM) growth, the rise of artificial intelligence (AI) and the broadening of technology earnings to other sectors due to productivity gains, a lowering of interest rates by central banks including in SA, a weaking United States (US) dollar coupled with shifting global alliances and higher commodity prices – all of which benefits SA directly or indirectly,” notes Herman.

“These forces are also driving the biggest investment trends for 2026: large-cap technology and AI, diversification away from the US, debt indigestion as global debt levels are extremely high while spreads are at record lows, the demand for commodities to feed the growth in AI and defence systems and further developments in digital currency adoption and tokenisation,” Herman explains.

Where opportunities are emerging for 2026

“As China diversifies away from the US, investment confidence is improving as new opportunities arise in the global trade environment, especially for countries aligned to China,” says Herman.

He points out that sustainability is also an important area of opportunity, as global capital continues to move toward green infrastructure, water systems and environmental innovation, the transition continues to redefine risk assessment and long-term returns.

Opportunities are also arising as global equities see a rotation from mega-cap technology to undervalued sectors, while fixed income is seeing the return of real yield as rates normalise. Alternatives such as private debt, infrastructure, renewable energy and venture capital, commodities and gold continue to gain relevance as safe-haven assets in place of the US Dollar.

While there is global concern over a possible AI equity bubble, Citadel’s team also views AI as “a long-term investment theme, not a short-term frenzy, due to expanding global adoption, reshaped productivity and corporate margin growth globally. Other themes with longevity are semiconductor expansion, energy storage, cybersecurity and automation,” adds Herman.

Where risks are concentrated

Herman sees risk and opportunity playing out in three areas: interest rates, equity market concentration risk and deepening global trade divisions.

“Interest rate spreads are too tight and don’t reflect the risks of record levels of indebtedness. Government debt is ballooning in key markets such as the US and United Kingdom (UK),” says Herman.

“At the same time, investment confidence in AI technology shows signs of irrational overexuberance. Concentration risk in the US stock market is enormous as the Magnificent Seven make up more than a third of the S&P 500 market cap. This makes the entire market dependent on a single theme. Stocks are at valuation levels that are considered high historically and we can’t say how long the boom will last,” outlines Herman.

Herman also notes that “investment confidence took a major knock as US President, Donald Trump’s tariff announcements acted as a wrecking ball to all existing global supply chains and trade agreements. China and the US are finding new trading partners that are more politically aligned. The old-school sectors, companies and countries, specifically in Western Europe, face the biggest headwinds as the world re-aligns away from the traditional Western capital and trade channels.”

Herman also clarifies that “markets have become insensitive to geopolitical risk as conflicts continue for long periods of time, geopolitical risk premiums will return in future.”

How investors can position portfolios for resilience and growth

Herman sees three key opportunities for investors in 2026:

• Fixed income,
• Multi-asset portfolios with hedge fund exposure and
• New opportunities in technology investing.

“Fixed income markets have turned a corner. A non-globalised world has higher structural inflation and bond yields will have to settle at higher levels to compensate for this erosion of value. With the US dollar on a structurally weaker path, it will place pressure on the world’s largest bond market,” highlights Herman.

He outlines that, with yields under structural pressure, alternative assets with low correlation to equities and other growth assets, such as multi-strategy hedge funds, are well-suited to provide diversification.

While there is an AI concentration risk in the equity markets, Herman believes the long-term economic opportunities for AI lie in areas that are not fully developed or understood yet, like humanoid robotics and autonomous vehicles. The mainstreaming of quantum computing also offers exponential gains in medicine, pharmacology, astronomy, telecommunication, engineering and finance.

Conclusion

Herman shares, “The year 2026 will reward disciplined, globally aware, tech-savvy, sustainability-aligned and diversified investment strategies. Market stress in a specific area should not overwhelm the entire portfolio, so that cash flows can always be harvested at optimal times.”

Looking at the global picture, Herman notes 2026 global growth should broaden out from the technology sector to the broader economy as fiscal spending via the defence sector trickles into the economy and as lower interest rates provide good tailwinds. EM, overall, are still growing faster than developed markets, keeping the economic outlook for 2026 quite positive.

SA’s economic recovery prospects, currency dynamics and structural reform trajectory also matter in portfolio construction and Citadel is factoring it in, says Herman. “SA finds itself at the intersection between an improved fiscal picture thanks to the commodity boom and a close alliance to China and India. This keeps SA out of the firing line of retracting supply chains and with the tailwind of strong commodity prices. The investor sentiment and narrative around SA is the best it has been in 30 years. In 2026, SA will benefit from lower interest rates, better growth prospects and more global trading partners, bolstered by the recent investment rating upgrade, improved terms of trade and huge global bond issue, all of which are keeping the rand stronger for longer,” says Herman.

ENDS