AI conviction intact after volatile first half marked by war and oil shock

Peregrine Capital says a war-driven oil spike hit markets hard in March but was fully recovered by April, and it remains confident in AI long term even as some investors worry about the short-term cost of the buildout.

Peregrine Capital released its semi-annual investor letter today for the six months ended 30 June 2026. The High Growth Fund gained 1.9% and the Pure Hedge Fund gained 1.2%, and the Vision Fund fell 0.6%, while the JSE All Share Index fell 3% over the same period. *

Peregrine called the period “once again, eventful”. Jacques Conradie, CEO of Peregrine Capital, said, “Markets are being shaped by two forces at once, rising geopolitical tension and the fast arrival of human-level machine intelligence, and that both will keep driving rapid change for some time.”

War, oil and a March drawdown
The biggest event of the half year was the US-Iran war, which started on 28 February. Oil prices climbed above $100 a barrel after Iran moved to close the Strait of Hormuz, a route that carries about 15% of the world's oil. The spike hit all three of the themes Peregrine had favoured coming into the year - the South African recovery story, store of value assets and AI - and the fund posted its largest drawdown on record in March.

During the first month of the conflict, oil spiked above $100, a level that, if sustained, would materially impact emerging markets like South Africa. It has since retreated to the high $80s at the time of writing. The global fuel supply situation has been exacerbated by recent Ukrainian drone strikes on Russian refining capacity, which have further tightened the supply of liquid fuels. Given that South Africa now imports around 65% of its liquid fuel requirements, this is very negative for the country's balance of payments, inflation outlook and growth potential. Negotiations between the USA and Iran have broken down, hostilities are escalating as we write, and it remains unclear how, or on what timeline, this crisis will be resolved.

AI conviction pays off
Peregrine has written about AI in its letters since 2022, and Peregrine’s position for it only got stronger this year. It pointed to the rise of agentic AI systems that can plan tasks, use tools and work toward a finished result largely on their own, something already visible in software development. The firm sees this as a step toward what it calls Recursive Self-Improvement, a feedback loop in which AI systems help build better versions of themselves.

Much of the fund's gain came from betting on chipmakers early in the year. Exposure to memory and hard drive manufacturers caught the wave as the SOXX semiconductor index rose more than 100% in the first half. Peregrine has since sold down a large part of that position and shifted the remainder toward TSMC, which it sees as a steadier long-term holding.

The firm also invests in Meta and Tencent, both of which fell during the period on investor concerns about AI spending. Peregrine disagrees with that reading. It argues the market is discounting the revenue growth and product gains these companies should see from AI, and believes the stocks look attractive at current prices.

AI and geopolitics
The letter also pointed to a newer risk. Frontier AI is starting to be treated as a national security issue. In June, a US export control order forced Anthropic to pull its models worldwide, including in South Africa, and access was not restored for about two and a half weeks, until the company agreed to a set of security commitments. Peregrine said government action is now something investors in this space need to watch closely.

On South Africa, the picture remains unclear. With oil back in the high $80s and hostilities escalating, the meaningful petrol and diesel price relief we had hoped for is unlikely to materialise in the near term, and fuel prices will continue to put upward pressure on inflation. Gold and platinum have pulled back from their early year highs but are still trading at levels that support the local economy. A durable resolution to the conflict would change the oil picture quickly, but until then, the oil price remains the single biggest swing factor for the SA macro outlook.

Outlook
Peregrine expects the second half to be just as eventful, with AI progress continuing quickly and the debate shifting from whether governments will step in to how far they will go. The firm said it is ready for further volatility in semiconductors after taking profits in June, and it remains confident in its larger technology holdings.

“This is an environment of faster change, more government involvement and more volatility, and it rewards patient capital,” said Conradie. “Investors who share that long term horizon let us treat volatility as an opportunity rather than a threat.”