Investors should be cautious about assuming the forces that drove returns over the past decade will continue to do so, says John Stopford (pictured), the head of multi-asset income at Ninety One. Although recent performance across most asset classes has been strong, the conditions underpinning that performance are shifting, with implications for portfolio outcomes.
In a presentation on 2 February, Stopford said market leadership and return drivers evolve over time. The combination of fiscal expansion, normalised interest rates, questions around United States exceptionalism, and improved emerging-market credibility suggests that future returns may be shaped by different forces than those that dominated the recent past.
He framed his presentation around the two the dominant influences on markets in recent years: political developments in the US, particularly under President Donald Trump, and the rapid emergence of artificial intelligence.
Stopford described the global economy as entering 2026 with a degree of momentum, supported largely by policy choices rather than by a broad-based acceleration in underlying growth. He noted that fiscal expansion has become a central feature of the macro environment, particularly in developed economies.
In the US, he pointed to sustained budget deficits of about 6% of GDP since the pandemic, alongside tax cuts, deregulation, and increased defence spending under the Trump administration. These measures, he said, have supported near-term growth expectations and contributed to market optimism. At the same time, US government debt has risen to about 100% of GDP and continues to increase.
Stopford characterised this fiscal stance as stimulative in the short run, while raising questions about its durability. He suggested that at some point investors may reassess their willingness to finance persistent deficits, with potential implications for bond markets and broader financial conditions.
He also drew attention to the political context in which US policy is being made. Stopford said Trump’s approval ratings have been declining, and the approach of the midterm elections could further constrain policy choices. These dynamics, he said, increase the likelihood of continued policy noise and uncertainty, even where earlier measures have ultimately been softened or reversed.
Similar shifts are taking place elsewhere. Stopford highlighted Europe’s move towards fiscal expansion, particularly Germany’s decision to abandon its long-standing fiscal restraint in favour of increased spending on defence and infrastructure. Japan is also considering stimulus measures. Together, these developments have supported expectations of stronger growth into 2026.
Inflation, monetary policy, and the changing role of bonds
The post-pandemic inflation shock appears largely contained across most major economies, Stopford said. Although US tariffs have pushed up certain goods prices, he said their overall inflationary impact has been smaller than initially feared. Disinflation in services, including housing-related components, has helped to offset price pressures elsewhere.
He attributed the limited impact on inflation partly to changes in trade patterns and inventory management, with companies importing goods ahead of tariff increases and adjusting supply chains. As a result, central banks have had scope to ease policy, and rate cuts have taken place across developed and emerging markets.
In South Africa, Stopford said inflation has moved closer to target, while real interest rates remain restrictive but are declining. Provided that currency and oil price dynamics remain supportive, he suggested that further rate cuts are possible, and policy rates could move towards 6% by the end of the year.
He noted that the rand has been materially stronger than many market participants had expected. This, he said, has helped to contain imported inflation and reinforced the disinflation trend. While cautioning that currency strength can reverse, Stopford described the rand’s recent performance as an important contributor to improved near-term monetary conditions.
Against this backdrop, he argued that fixed-income markets have undergone a material change compared with the previous decade. After a prolonged period of unusually low yields following the global financial crisis, bond markets now offer more attractive nominal and real returns. This has altered the relative appeal of asset classes, with fixed income once again competing more directly with equities.
Threats to US exceptionalism
Stopford discussed the risks associated with the long period of US market dominance. He noted that US equities have outperformed most other regions over the past 10 to 15 years, supported by a strong dollar, accommodative policy, and the rise of a small group of large technology-related companies.
Stopford questioned whether this combination of factors is likely to persist. He pointed to the high level of concentration in US equity markets, where a narrow group of stocks accounts for a disproportionate share of market capitalisation and returns. Historically, he said, such concentration has often been followed by weaker subsequent performance, as leadership shifts and expectations adjust.
He also highlighted the close relationship between US equity outperformance and the strength of the US dollar over the same period. Stopford suggested this cycle may be extended and increasingly vulnerable, particularly considering fiscal policy choices, political uncertainty, and changing global capital flows.
Stopford described the Trump administration as a continuing source of disruption. Although some policy actions have supported growth – including lower energy prices – others have increased uncertainty. Tariffs, threats of retaliation, and unpredictable announcements have periodically unsettled markets. Even where such measures have later been moderated, he said the cumulative effect has been to reduce confidence in policy stability.
Taken together, Stopford argued these factors weaken the assumption that the US will remain the uncontested centre of global capital allocation. He did not forecast a collapse in US markets or the dollar, but described a process of gradual diversification, reflected in stronger precious-metal prices and growing interest in non-US assets.
AI, wealth effects, and productivity
Stopford said AI has driven significant investment by large technology firms in data centres, chips, power generation, and related infrastructure, with spillover effects across the construction, energy, and industrial sectors.
He also noted that rising equity prices among AI-linked companies have created a wealth effect, particularly among higher-income households, supporting consumption and contributing to overall economic resilience. This channel, he suggested, has been one factor underpinning growth despite broader uncertainty.
At the same time, Stopford cautioned that the economic benefits of AI should not be conflated with guaranteed investment returns. He argued that although AI may lift productivity – an increasingly important factor in ageing economies with slower labour-force growth – the gains may accrue unevenly. Heavy capital spending and elevated valuations raise the risk that investor expectations may exceed realised returns, particularly for companies dominating market indices.
He suggested that the most significant benefits of AI may come from its application across industries, rather than from ownership of the underlying models or infrastructure.
Emerging markets and South Africa
Stopford linked his reassessment of US dominance to a broader shift in sentiment towards emerging markets. He argued that many emerging economies now display stronger monetary discipline and more credible central banking frameworks than in previous cycles. This has contributed to improved average credit quality and a reassessment of emerging-market risk.
Stopford acknowledged that long-term growth remains constrained and structural challenges persist. However, he pointed to moderating inflation, a stronger-than-expected rand, and South Africa’s participation in renewed emerging-market capital flows as signs of improving alignment with global conditions.
Stopford noted that the rand’s strength has surprised many investors, particularly given South Africa’s recent growth history. He linked this in part to improved global sentiment towards emerging markets, relatively disciplined domestic monetary policy, and favourable external factors, such as lower energy prices. He also observed that currency strength has reinforced the inflation outlook by reducing imported price pressures, thereby increasing the scope for gradual monetary easing.
At the same time, he cautioned that currency performance remains sensitive to global developments, including US policy decisions, commodity prices, and shifts in risk appetite. He characterised the rand’s recent performance as supportive rather than decisive. It should be viewed as part of a broader improvement in sentiment rather than as evidence of a completed turnaround.
Stopford described South Africa’s position as one of gradual improvement rather than transformation. Although risks remain – including exposure to global political developments and commodity cycles – he suggested that sentiment has shifted away from extreme pessimism.
Disclaimer: The information in this article does not constitute investment or financial planning advice.
