The third quarter of 2026 saw a significant shift in geopolitical conflict, higher oil prices and rising interest rates. Conflict between the United States and Iran gained momentum again as negotiations failed. Oil prices and interest rates rose sharply. Surprisingly, markets did not collapse. Instead, strong corporate earnings, resilient economic growth and continued AI investment absorbed much of that shock.
President Donald Trump’s imposed tariffs on trading partners increased the cost of imported goods. Even though this created pressure on the trading partners, it also encouraged domestic production. While the intention is to strengthen US industry and reduce trade imbalances, tariffs also created uncertainty for companies that rely on international supply chains.
The latest US-China discussions produced only limited progress, with the existing tariff truce extended for a further two months rather than delivering a longer-term resolution. Interestingly, despite the tariff programme, US imports reached record levels in August and the US trade deficit widened substantially, suggesting that the effects of the policy are proving more complicated than initially intended.
The combination of war, oil and government borrowing also created significant pressure in global bond markets. US 10-year Treasury yields moved above 5%, while government bond yields in Japan and several European economies reached multi-year highs. Emerging-market equities were more vulnerable to the rise in oil prices and global interest rates, although they generally weathered the quarter better than might have been expected.
The MSCI Emerging Markets Index fell modestly in quarter 3, with a sharp July sell-off in semiconductor and technology shares weighing on markets such as South Korea and Taiwan. However, the picture was far from uniformly negative. Emerging markets benefited from resilient corporate earnings, continued AI investment and, in some countries, stronger fiscal discipline and more credible monetary policy than in previous cycles. Energy and financial stocks performed well, while higher gold and copper prices supported commodity-producing economies. South Africa was among the stronger-performing emerging markets during August, while China regained momentum in parts of its technology and AI sectors.
Overall, emerging markets demonstrated surprising resilience despite higher US bond yields, a stronger dollar and renewed geopolitical uncertainty, although performance remained highly differentiated between countries and sectors.
European equity markets were not immune to rising oil prices and higher bond yields. The markets struggled this quarter, seen by a large quarterly decline of the STOXX Europe 600, by 1.07%. Just as European Central Bank was tightening monetary policy, they were hit with increased energy prices due to the escalation of the US-Iran conflict.
South African markets were not immune to these global pressures either. The FTSE/JSE All Share Index ended the third quarter marginally lower, falling 0.3%, although the performance beneath the surface was more mixed. Precious-metal and resource shares benefited from strong commodity prices, with the resources sector gaining 12.8%, while higher oil prices, global bond yields and a renewed tightening cycle from the South African Reserve Bank weighed on the broader market. The SARB raised the repo rate to 7.25% in September as it responded to renewed inflation risks. South Africa’s relatively resilient rand helped cushion some of the impact of higher international oil prices, but the country remains particularly exposed to an oil shock because it imports most of its crude oil.