April 2026 Newsletter

Highlights of this month’s newsletter:

“In war, truth is the first casualty.”
― Aeschylus

Market overview: performance figures (%)

Source: Edmond de Rothschild, 31.03.2026

Source: Edmond de Rothschild

The US–Iran conflict, now in its fifth week following the joint US–Israeli strikes which started on 28/2 February, continues to dominate global markets. The Strait of Hormuz remains effectively closed, oil prices have surged from December lows of approximately $58/bbl to an intraday high of $118/bbl, and investors are caught between persistent inflation and slowing growth. Markets have moved beyond pricing a swift, intense shock and are now discounting a more enduring and chaotic scenario, one in which infrastructure damage casts a longer shadow over oil flows, supply chains, and growth into mid-2026.

Despite this, the bond and equity sell-offs have been volatile but moderate rather than a full-blown meltdown. The Brent oil futures curve is heavily backwardated, with the spot price approximately $26/bbl above the 12-month rate, signalling that markets still expect the disruption to be temporary. This expectation leaves risk assets vulnerable should the conflict drag on.

Chart 1: Oil shock expected to be temporary

Source: Alpine Macro

Key takeaways

1. President Trump’s withdrawal of his ultimatum to Tehran briefly eased tensions but has not reversed the inflationary shock from higher oil prices.
2. Central banks have turned more hawkish in response to market-driven oil assumptions and second-round inflation risks.
3. With volatility elevated and buffers thinning, investors should remain patient and prepare selectively rather than act impulsively.

Geopolitical outlook

The Trump administration’s sensitivity to fuel prices and equity performance ahead of the midterms, combined with the operation’s cost of $1 billion per day, is narrowing the window for sustained military action. Having issued a high-stakes ultimatum to Tehran and then stepped back from it, the administration has shown flexibility to reshape the narrative. The pressure on politics to act is high, and common ground for revitalising Hormuz trade is broadly available.

Energy markets: The critical variable

Approximately 20% of global oil and LNG transits through the Strait of Hormuz. The oil supply disruption has stabilised below 10 million barrels per day, and the shift to alternative trade routes, particularly Saudi exports via the Red Sea, has been more successful than expected. Well-filled storage is absorbing the shock for now, but this buffer is vanishing. A credible silver lining, demonstrating pathways to revitalise Hormuz trade, must appear imminently.

Chart 2: Strait of Hormuz conflict: Oil supply shock scenario outlook

Source: Alpine Macro

Risks to Monitor

• Escalation: Activation of Iraqi Shiite militias, Hezbollah, or strikes on Gulf oil infrastructure could push oil towards $130/bbl, requiring immediate de-risking.
• De-escalation: Reports that Tehran is permitting Iranian-flagged crude through the Strait suggest a desire to avoid alienating China; any credible ceasefire should be bought aggressively.
• Earnings season (April–May): The first opportunity for corporates to reprice guidance for higher input costs.
• Fed policy surprise: A scenario in which persistent inflation forces rate hikes would be deeply damaging for both equities and bonds.

Summary

History consistently shows that selling during volatile and chaotic periods is unwise. Sharp drawdowns driven by geopolitical shocks have, without exception, been followed by recoveries, and the investors who fare worst are those who liquidate at the point of maximum uncertainty. We strongly recommend adhering to long-term investment plans and resisting the temptation to make reactive changes to portfolio positioning.

In the VEGA Global Strategic Fund and across client portfolios, we have proactively created cash reserves to deploy should markets decline further. Periods of elevated volatility and uncertainty create compelling opportunities to invest in high-quality companies that ordinarily trade at premium valuations.

Source: Moneyweb, SARB

The JSE All-Share Index recorded its worst monthly performance in nearly two decades, caught in a double bind as the conflict in Iran drained appetite for emerging-market assets while sharply lower precious metal prices weighed heavily on South Africa’s mining sector.

The Index declined 11% in March, its steepest monthly drop since the depths of the global financial crisis (GFC) in September 2008. This marks a striking reversal of fortune after the index had recorded 12 consecutive months of gains through February, the longest such winning streak on record.

Chart 3: The JSE worst monthly performance drop since GFC

Source: Granate Asset Management

The precious metals and mining sector, which carries a weighting of roughly a quarter of the index, has shed 27% since the onset of the Middle East conflict. In doing so, it has effectively wiped out all gains made earlier this year, as both gold and platinum prices tumbled sharply. This sector-specific pain has unfolded against a broader selloff in emerging-market equities, as investors grow increasingly concerned that surging oil prices will stoke inflation and compel central banks to lift interest rates. Profit-taking in precious metals counters, amid broader de-risking, amplified the blow to South African equities.

With oil prices now trading above $100 per barrel and geopolitical uncertainty continuing to suppress investor sentiment, the bullish positioning that characterised the early part of the year has been swiftly unwound. South African equities now rank among the worst-performing markets globally, with only Dubai, Indonesia and Korea recording steeper declines since the start of the conflict.

The damage has not been confined to miners. Construction and materials, retailers and the banking sector have each fallen by more than 10% over the course of the month.

March MPC Review

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) held the policy rate unchanged at 6.75% at its most recent meeting, with the decision reached unanimously. The SARB revised its 2026 inflation forecast upward to 3.7%, though its baseline projections are premised on a relatively swift resolution of the war in the Middle East. The SARB’s various scenarios also highlight meaningful risks of interest rate hikes should oil prices remain at current elevated levels.

Outlook: The interest rate trajectory hinges on how the conflict unfolds

The SARB adjusted its inflation forecasts upward in direct response to the war in Iran, which has driven oil prices higher and contributed to rand weakness. The average 2026 inflation forecast now aligns with ours at 3.7%, although our projections point to a modest spike in the second quarter of 2026, before benefiting more substantially from favourable base effects the following year. Current forecasts assume the rand trades at approximately R16.70 to the dollar in the second quarter of 2026 and R16.80 in the third quarter, with oil prices expected to average $78 per barrel this year and $68 per barrel in 2027.

Our baseline inflation forecasts, broadly consistent with those of the SARB, do not at this stage necessitate rate hikes. We continue to see room for prudent rate cuts, provided the conflict does not become excessively prolonged or escalate materially. That said, the longer the war continues, the greater the probability that both the inflation outlook and the interest rate trajectory will prove less benign than our current base case implies.

Chart 4: SARB model sees a below-50% chance of a May rate hike, followed by a 25bps rate cut later this year and two more next year

Source: SARB, SBG Securities

Chart 5: Terms of trade weaker but still relatively high in a historical context (with other commodity prices partly counteracting the impact of higher oil prices)

Source: SARB, SBG Securities

March was a more challenging month for the VEGA Global Strategic Fund. Over the month, the fund declined 8,2%, while the MSCI All Country World Index, our reference benchmark, declined 7,4% in USD terms. Despite the short-term setback, we remain focused on the long-term opportunities within the portfolio and committed to our investment approach.

Chart 6: Total return in USD since inception

Portfolio strategy

In the wake of heightened market volatility following President Trump’s tariff announcements, our stance has been to remain disciplined and avoid reactive portfolio shifts. History consistently shows that impulsive responses to short-term political noise often result in suboptimal investment outcomes.

Instead, we have used this environment to evaluate high-quality businesses that were indiscriminately sold off despite their strong long-term fundamentals. Periods of uncertainty can create attractive entry points into quality companies at compelling valuations, and we continue to focus on identifying these opportunities with a long-term perspective.

The portfolio remains invested in leading global businesses with durable competitive advantages, particularly those delivering high returns on capital and robust free cash flow generation. Dividend policies are not a central consideration in our selection process, as we generally favour companies that reinvest earnings to drive future growth.

We also resist the temptation to follow short-lived market trends or fashionable investment narratives, as preserving portfolio quality takes precedence over chasing momentum.

Changes which were made during the month

Linde plc — Removed Position

We exited our holding in Linde plc following a period of strong performance. While the company remains a world-class industrial gases business with a dominant global market position and a credible long-term growth runway, we felt the valuation had reached a level that offered limited further upside relative to the risk. We redeployed the capital into positions we believe offer more compelling risk-adjusted returns at current levels.

BYD Company — Removed Position

We exited our holding in BYD Company after a reassessment of the near-term risk profile. While BYD continues to demonstrate impressive technological innovation and an expanding international footprint, the combination of softening domestic electric vehicle demand in China, intensifying competitive pressures and ongoing margin uncertainty led us to conclude that the risk-reward balance had become less favourable. We rotated the proceeds into opportunities we believe are better positioned at this stage of the cycle.

Yum China Holdings — Removed Position

We exited our holding in Yum China Holdings following a period of satisfactory performance. While the company remains the largest restaurant operator in China with a well-established brand portfolio and a disciplined capital return programme, the broader macroeconomic headwinds facing Chinese consumer spending and the subdued same-store sales growth environment gave us reason to seek more attractive opportunities elsewhere in the portfolio. The proceeds were redeployed accordingly.

Top 10 Holdings

Monthly returns in USD net of fees

Share of the month: Tencent Holdings (0700.HK)

Business Strategy & Outlook

Tencent has built one of the world’s most powerful digital ecosystems, anchored by WeChat, China’s dominant super-app with over 1.3 billion active users. The platform spans messaging, payments, social media, gaming, and enterprise software, creating compounding monetisation opportunities across every segment.

Gaming remains the primary earnings driver, contributing approximately 60% of operating income, with enduring franchises such as Honor of Kings and Peacekeeper Elite sustaining high daily active user counts and recurring microtransaction revenue.

WeChat advertising represents the single largest untapped growth lever. Rising user engagement, improved ad load management, and AI-enhanced targeting are expected to drive a 14% five-year advertising revenue CAGR. AI also powers internal efficiency gains, as Tencent allocates GPUs to its own use cases rather than external compute sales.

Fintech and cloud services offer a long-term value creation runway, underpinned by WeChat Pay’s network dominance and Tencent Cloud’s deep enterprise integration.

Economic Moat

Tencent holds a wide economic moat, primarily rooted in powerful network effects across its ecosystem. We consider it more likely than not that the business will generate excess returns on invested capital over the next 20 years.

Key moat sources:

• WeChat’s network effect creates insurmountable barriers for new entrants and high switching costs for users who would forfeit social connections, payment records, and business contacts.
• Gaming: Leading franchises benefit from self-reinforcing player network effects, with large communities driving faster matchmaking, richer experiences, and robust esports ecosystems.
• Advertising: WeChat’s data asset enables superior ad targeting, with algorithms improving continuously as data accumulates.
• Fintech: WeChat Pay’s scale creates a classic two-sided network, with both consumers and merchants locked into the ecosystem.
• Cloud/SaaS: Enterprise clients face high switching costs due to deep integration into mission-critical workflows.

Financial Strength

Tencent closed 2025 in a net cash position with consistently robust free cash flow generation, even through the disruptive gaming license halts of 2018 and 2021. This financial resilience provides the flexibility to fund AI investment and strategic initiatives without compromising balance sheet integrity.

The company’s investment portfolio, valued at approximately CNY 1 trillion in public and private stakes, serves as a substantial liquid reserve. Notable holdings include positions in JD, Meituan, PDD, Kuaishou, and Xiaohongshu.

Capital Allocation

Management has demonstrated a disciplined fast-follower strategy, entering markets with improved offerings after observing competitor innovations, consistently delivering returns above the cost of capital.

Shareholder distributions have increased materially since 2021. Looking ahead, with AI investment on the rise and the regulatory environment improving, we expect approximately 80% of earnings to be returned to shareholders over the next few years, through buybacks, dividends, and in-specie distributions.

Key Risks 

• Regulatory risk: Gaming license suspensions (2018, 2021), payment reserve rules, and potential antitrust action on WeChat Pay remain material policy overhangs.
• VIE structure: Tencent operates via a Variable Interest Entity structure to circumvent foreign ownership restrictions. Regulatory repudiation remains a low-probability but high-impact tail risk.
• Competitive pressure: ByteDance and short-video platforms continue to compete aggressively for user time and advertising budgets.
• Macroeconomic sensitivity: Weak consumer sentiment in China can weigh on discretionary gaming spend and advertising budgets.

In Chapter 8, Morgan Housel introduces one of the most counterintuitive and important ideas in finance: calm plants the seeds of crazy. The very stability that investors welcome and policymakers strive to maintain is, by its nature, the force that quietly manufactures the next crisis. This is not pessimism. It is simply how human systems work.

The chapter draws heavily on the work of economist Hyman Minsky, whose Financial Instability Hypothesis argued that when the economy is stable, people get optimistic, and when they get optimistic, they go into debt, and when they go into debt, the economy becomes unstable. In other words, stability does not persist because of its own strength. It is eroded by the very confidence it produces.

Minsky was largely dismissed during his lifetime. His thinking ran against the dominant belief in the 1960s and 1970s that economists had developed the tools to smooth out the business cycle permanently. Housel highlights the irony: the more confidently policymakers believed they had eliminated recessions, the more dangerous the underlying conditions became. A lack of recessions actually plants the seeds of the next recession, which is why we can never get rid of them.

Housel is careful to point out that this does not make markets broken or people foolish. Volatility is both inevitable and caused by people acting reasonably. Each individual decision along the way, borrowing more when rates are low, investing more when returns have been strong, relaxing caution when nothing has gone wrong in years, makes sense within its own context. The instability emerges from the accumulation of reasonable choices, not from a single reckless act.

“The lack of recessions is what creates the next recession.” – Morgan Housel

The psychology behind it

At the heart of this chapter is a simple but uncomfortable truth about human perception. We are not calibrated to long-term base rates. We are calibrated to recent experience. A decade without a serious recession teaches an entire generation that recessions are manageable.

A few years of rising asset prices teaches investors that risk is under control. These lessons feel earned because they are grounded in lived experience. But they are precisely the conditions under which complacency becomes most dangerous.

Housel frames this as a cycle that has always existed and will always continue. Fear produces caution. Caution produces stability. Stability produces confidence. Confidence produces excess. Excess produces instability. And the cycle begins again. Recognising that crazy is not the exception to the system but a recurring feature of it changes how you read the world.

What This Means for Investors

For investors, Chapter 8 offers a useful reframe. Rather than reacting to periods of market turbulence with confusion or blame, understanding the Minsky cycle allows you to contextualise what is happening. Booms and busts are not signs that something has gone wrong. They are evidence that the system is working exactly as it always has.

The most counterintuitive idea is that long periods of stability make people feel safe, which is exactly when they are most at risk. Acknowledging this does not mean predicting the next crisis. It means structuring a portfolio that does not require stability to survive and does not need to predict the timing of disruption in order to endure it. That combination, resilience over precision, is what gives long-term investors their edge.

Source: Visual Capitalist

Sources

Alpine Macro, Anchor, Bloomberg, BNY Mellon, Charlie Bilello, Compound Advisors, Edmond De Rothschild, ETFMG, FactSet, Haver Analytics,  JP Morgan, Julius Baer, LSEG, Morningstar, Morgan Stanley, Refinitive, RMB, Statista, Sygnia, Strategas, The Intelligent Investor, UBS.

Disclaimer

VEGA Asset Management has taken care that all information provided in this document is true and correct. VEGA Asset Management does not accept responsibility for any claim, liability, loss, expense, or damage. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. VEGA Asset Management is an authorised Financial Service Provider with FSP number 776. Past performance is not necessarily an indication of future performance.