With global markets having been dominated by US equities for the past decade – driven more recently by AI and the tech sector – many investors are still overlooking emerging market opportunities, particularly in South Africa, which is offering superior and undervalued quality shares. 

This was the view shared by presenters at Old Mutual Investment Group's quarterly media briefing this week, who highlighted that South African equities was one of the best-performing markets this year, with this trend expected to continue into the New Year.

The local market, supported by structural reforms and improving economic fundamentals, is looking increasingly attractive when compared to global markets.

"If we look back at 2025, we saw the exuberance over AI, and similarly, for gold, but on the local side, we saw a bit of shakiness around the government of national unity, fragile growth and unstable economic fundamentals; but most importantly, we saw a reduction in South Africa's inflation target," said Sehrish Khan, Investment Analyst at Old Mutual Investment Group. "What surprised me the most was how all of that translated into asset performance."

Data from 2025 show that, even when measured in US dollars, South African equities outperformed those of the United States and other developed markets. Precious metal miners have led the rally, supported by higher gold and platinum prices, while domestically focused companies are attractively priced but remain constrained by the low-growth environment. "When we looked at purely domestic facing shares in the local economy, South African shares rank very attractively on price-to-earnings ratios relative to other emerging market shares. We are cheaper than 70% of emerging markets shares, and that is despite delivering superior returns for shareholders," she noted.

Going into 2026, several factors are strengthening South Africa's investment appeal, according to Khan. Firstly, an improving fiscal position: tight expenditure control, revenue bolstered by mining tax receipts and stronger compliance, lower bond yields, and the government is projecting its third consecutive primary budget surplus. "The SARB has actually done a really good job of keeping our fiscal situation under control, and it seems like things are genuinely improving," she said. "Additionally, operational reforms are beginning to alleviate long-standing constraints such as electricity load-shedding and logistics bottlenecks, boosting efficiency and business confidence."

By contrast, the US equity market, heavily influenced by the "magnificent seven" tech stocks, faces growing risks. "Technological investment, driven by AI enthusiasm, has supported US economic growth, while consumption has waned.  The demand for energy from AI-related investments has led to rising energy prices, which adds pressure to consumers, while rising US debt levels and a worsening fiscal position appear unsustainable," she explains.

Emerging markets, on the other hand, have performed really well over this year, Khan points out. "South Africa, Mexico, Brazil and even China have performed better than the United States. Emerging markets, and South Africa in particular, are benefiting from disinflation, monetary policy easing, and growth resilience." 

For investors, this creates a compelling case to reassess allocations. Domestic-facing South African companies have delivered admirable returns despite a constrained economic environment, and ongoing reforms suggest further upside. Lower interest rates and reduced fiscal pressures are expected to support growth, while undervaluation relative to global peers offers potential for re-rating.

"Even if it's just an appreciation of the improving economic environment in the form of a re-rating, I think these shares, South African-facing shares, are very attractively priced," said Khan.

Against this backdrop, Old Mutual Investment Group Portfolio Manager Gustav Schulenburg added that it is important for investors to understand where we currently are in the global and local market cycle. "No one rings the bell when the cycle is over and about to turn; cycles take a long time."

If you look at the past 100-year period, we can't emphasise enough how abnormal the most recent cycle has been since the Global Financial Crisis, he says. "This is unlikely to be what we experience in the next 10 years, and if it isn't, it will be worthwhile taking cognisance of past trends of previous cycles.

He points to the fact that large-cap US assets have dominated flows over the past 10 to 15 years. "The bulk of the global capital has flowed into large-cap, US dollar-denominated assets that are exposed to one or two specific sectors in one or two specific geographies. Now that may continue short term, but considering historic global equity cycles, and we would argue that we are much closer to the top than the bottom," he says.

Looking at historic cycles, the current US cyclically-adjusted P/E valuations look stretched and dangerous, says Schulenburg. "What is concerning in a US market driven by a very narrow range of sectors, is that from the last three peaks in the CAPE Ratio, the 10-year nominal and real returns in the US have been negative – leading us to surmise that we are in dangerous territory here."

Schulenburg agrees that emerging markets are looking more compelling in the current environment and moving into 2026. In SA, we are seeing a lower oil price, improving energy constraints and logistics challenges in our port and rail systems. "It's almost as though the local macro environment has been slowly improving for some time without anyone actually realising," he says.Echoing Khan's sentiments, Schulenburg adds that some headwinds are now turning into tailwinds. "This, combined with cheap prices in the local equity market, is making us feel quite excited about SA equities for the year ahead," he concludes.