The one bright spot for South Africa’s economy

Despite the country’s low growth environment, South Africa’s equity markets continue to reach record highs amidst expected improvements in the local environment.

South Africa’s JSE All Share Index recently crossed a record 96,000 points, while the economy only grew 0.1% in Q1 2025 off an already low base.

South Africa, however, is not alone in this trend, with countries like Germany and Canada also hitting record highs despite the downgrade in their economic forecast due to US trade policies.

Old Mutual Wealth investment strategist Izak Odendaal stressed that the stock market and economic growth are different, with the former looking ahead of the latest figures.

Despite the US expecting to see its growth forecast drop, other countries, including Germany, Japan, the UK and South Africa, are still expected to see better growth in 2025.

The OECD expects South Africa’s GDP to increase from 0.6% in 2024 to 1.3% in 2025, while other estimates also point to a range from 1% to 1.5%.

Odendaal added that policy suport, such as lower interest rates in many countries, are expected to cushion the economy from the uncertainity caused by the USA.

He added that Trump’s erratic policymaking style and the massive rise in US government debt are panicking investors.

Although investors will not ignore the US due to its massive size, many are realising that they may be overexposed to the US and are looking for alternatives, boosting markets outside of the USA/

A weaker US dollar will also reduce global investors’ US investments, with hedge funds, pension funds, and insurers looking for alternatives.

The weaker rand has boosted returns from offshore investments in South Africa over the last decade and a half.

Local investors thus took their money offshore, while companies made acquisitions abroad with decidedly mixed results.

“It discouraged foreigners from investing here, since while they can hedge out exchange rate movements, it is relatively expensive given high local interest rates,” said Odendaal.

“Offshore investing makes a lot of sense for South Africans, given the diversification benefits and larger opportunity set. Many South African investors remain overexposed to their home market.”

Nevertheless, he added that locals still seem to be investing through the rearview mirror, and are not looking ahead.

Although the economic picture in the country remains mixed, there are signs of improvement for several key industries.

As ongoing logistical challenges impacted both industries, mining and manufacturing saw a quarter-on-quarter decline in Q1 2025.

The Department of Transport is pushing ahead with possible private sector participation (PSP) in the country’s rail and ports system, especially on mining corridors, which will boost investments.

Consumer spending has also firmed up amidst the lower interest rates and inflation, with a 3% year-on-year rise from Q1 2024.

Recent data from Naamsa also showed that new car sales increased by 21% year-on-year in May, an indicator of improving consumer health.  

Why stocks are doing well

Outside of the global factors, the JSE has outperformed the broader emerging markets index in dollar terms, highlighting that some local factors are in play.

Despite no increase in production and concerns over organised crime, local mining shares have performed well amidst the rise in commodity prices.

The dollar gold price has jumped 28% this year, while platinum and palladium have increased 22% and 11%, respectively.

Consensus earnings per share growth for the JSE’s resources sector for 2025 stands at 50%, and 25% for 2026.

The financial sector of the JSE also benefited from lower inflation and declining interest rates.

With the country expected to lower its inflation target, long-term interest rates have been pulled lower.

Consensus earnings growth for the financial sector is roughly 9% per year in 2025 and 2026, which is a respectable return given the low inflation environment.

Regarding the industrials, Richemont, AB Inbev and BAT have been the biggest winners, with all three being globally focused consumer companies.

Naspers and Prosus are also global companies; given their size, they have been key drivers in the overall increase in the JSE.

Although retail shares have faced pressure in 2024, this comes off a strong rally last year, amidst the improved consumer spending.

Consensus earnings for the growth of industrials are around 19% per year in 2025 and 2026.

Thus, the overall earnings growth outlook for the JSE is healthy: 20% in 2025 and 15% in 2026, depending on the benchmark.