Inflation and geopolitics put active asset allocation in focus for 2026
It does not take much to restore a sense of proportion after South Africa’s buoyant 2025 financial market performance. Your writer was reminded just how small our investment universe is while attending a Schroders 2026 Outlook webinar, held early in the New Year, and titled Beyond SA’s borders in 2026: Is your portfolio ready to go global?
Dwarfing local fund assets
The opening remarks revealed that Alex Tedder, the Group Chief Investment Officer for Equities at Schroders, oversees around R5 trillion in assets globally. Schroders Group, meanwhile, exceeded USD1 trillion in assets under management (AUM) in 2025. And this is just one of many asset manager and fund mandate combos that surpass the AUM of South Africa’s collective investment schemes (CIS) industry, reported by the Association for Savings and Investment South Africa (ASISA) at R4.4 trillion by end-September 2025.
Stuart Podmore, the asset manager’s Investment Propositions Director out of London, was on hand to ask the tough questions during the 90-minute webinar. He pointed out that getting to grips with global financial markets starts with understanding the outlook for the United States (US). “If you are based in South Africa looking out at the world, you can be forgiven for thinking the world has gone a little bit crazy,” Podmore mused, before asking Sebastian Mullins, Head of Multi-asset and Fixed Income at Schroders Australia, to comment on multi-asset investment approaches in the context of recent news flows and heightened geopolitical risk.
Mullins deflected from US President Donald Trump by recalling a strategic thematic framework introduced by the asset manager around 2023, namely the 3D Reset. This framework singled out deglobalisation, decarbonisation and demographics as long-term forces impacting the global economy and investment markets.
“The view back then was that we would see more inflation, volatility and effectively, more populism around the world,” he said. “The invisible hand of Adam Smith that used to guide free markets is now a very visible hand of government intervention, whether it be Trump or other countries, dictating where money goes and where policies lie.”
Tuning out the political noise
The presenter encouraged advisers and investors to look through the political noise and focus on the macro factors that really matter, including growth, inflation and interest rates. At a high level, the America First policy stance under Trump is contributing to stronger US GDP growth, while a combination of growth, moderate inflation and strong corporate earnings has proven supportive for US equities. Mullins highlighted growth, inflation, strong retail sales and real wage growth as bullish factors but warned about stretched equity valuations.
“Our most recent economic and strategy viewpoint is more upbeat about global growth,” Podmore said, forecasting around 2.7% for real global GDP growth for 2026. Mullins confirmed this upbeat view before warning of the dangers of monetary debasement of assets should the US dollar perform poorly. Your writer recently attended another outlook presentation that hinted the US dollar was entering a multi-year weakening cycle against a basket of global currencies. Past cycles have seen the dollar halve over periods spanning seven to 15 years.
The experts agreed that higher global GDP growth and rising government debt would contribute to higher inflation but struggled to explain how major economies would use monetary policy levers in response. A consensus view is that equities and bonds tend to correlate more closely when inflation ticks higher, causing more volatility in multi-asset portfolios. According to Mullins, the big question is how the US Federal Reserve responds to Trump’s assertiveness.
Doves versus hawks through history
Those complaining about Trump putting pressure on the incumbent Fed Chair may find some solace in history, which offers many examples of dovish and hawkish monetary policy decisions aligning, at times, with broader political leanings. By way of illustration, Mullins questioned whether the next incumbent might prove more hawkish, in the mould of Paul Volcker, or more dovish, closer to Arthur Burns. Doves tend to ease policy more readily and earlier in the cycle, while hawks remain more cautious and focused on inflation control.
Asset managers are betting on Trump picking a dovish Fed Chair and cutting interest rates more aggressively than anticipated into 2026, possibly two further cuts from the current 3.75% level. If this happens, then Mullins expects the US to have higher debt and inflation and overall conditions that favour equities and real assets over bonds. “Two rate cuts are probably correct because of the dovish person coming in as opposed to the economy justifying it,” he explained. “You do not want to hold long-end bonds at all [in this scenario].”
Podmore asked what a dovish Fed Chair might mean for the rest of the world. This question was answered in the context of further rate cuts being bearish for the US dollar outlook. If the US dollar falls, other currencies strengthen, but whether or not that benefits countries or individual companies in those countries becomes somewhat of a balance of trade debate. “A weaker dollar should be good for equities,” Mullins said, before advising that the country-level outcome depended on how currency pairs reacted and that country’s mix of exports versus imports.
Multi-assets for the New Year
The conversation turned to asset class positioning for 2026. Mullins offered global growth and improving earnings momentum as reasons to favour global equities. However, the narrow concentration in US mega-cap technology counters, and their high valuations, signalled more modest returns from this class. “Everything looks expensive, or at best, neutral … nothing is cheap anymore,” he complained, noting that Europe, Japan and the United Kingdom (UK) had followed the US higher.
One strategy is to reassess equity exposure through a value lens. So, while Schroders remains bullish on global equities, they are looking for opportunities outside the US, seeking countries that offer attractive valuations. Inside the US, they are considering counters outside the Magnificent Seven. Podmore pressed the issue, asking how a combination of geographic and value diversification was impacting multi-asset decision making. According to Mullins, value strategies were doing well outside the US, as evidenced by strong showings from commodity and defence stocks through 2025.
Gold, which has been flirting with USD5000 per ounce for some time, cracked special mention. Mullins suggested having a strategic allocation to the precious metal, saying its price was supported by sustained central bank demand, particularly from emerging markets. Gold was celebrated as an effective hedge when bonds fail to offset equity risk. Mullins manages his funds’ exposures around a core position, trimming into excess optimism and rebuilding on pullbacks. PS, gold pushed through the USD5000 mark a few days after the webinar.
Gold and equities for the win
From a multi-asset perspective, Mullins argued that investors should assume a world dominated by higher fiscal spending, inflation volatility and geopolitical fragmentation, regardless of who occupies the White House. The asset manager also said investors should place a premium on active positioning, diversification and regional rotation. It remains bullish on equities overall; prefers defensive assets such as gold or other currencies over bonds for portfolio protection; and is not enthusiastic about credit.
“Do not let the narrative or geopolitical risk of Trump keep you away from investing,” Mullins concluded. “Be invested. Be active. And try to find opportunities [rather than] sitting on a cash pile [that will] erode in real terms.”
Writer’s thoughts:
Active asset allocation will give your clients an edge as geopolitics and inflation dominate the 2026 discourse. Are your investment partners aligned with an active approach, and how are you explaining portfolio changes to your clients? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
