South Africa quietly emerges as one of the best markets in the world
South Africa has quietly been one of the best-performing markets in the world, with investors still remaining keen on financial and diversified mining companies.
In its 2026 Global Outlook Report, Morningstar noted that South Africa has been a hidden gem among emerging markets.
Emerging markets have seen a resurgence over the past year, as investors diversified away from more expensive developed markets—particularly US equities.
Since the start of the year, South Africa has been the standout performer, with a year-to-date return of over 55%.
South Africa has largely gone unnoticed, but it has posted an impressive 42% return in US dollars.
Morningstar noted that South Africa accounts for a relatively small portion of the emerging market index, comprising approximately 3%.
The nation has a lower quality investable universe than its leading emerging-market peers like China, India, Korea and Taiwan.
South African investors have pushed South African equities higher, with the JSE still experiencing 10 consecutive years of net outflows.
Although South Africa has delivered long-term dollar-based returns comparable with the US equity market, the short-term investment case has been impacted by weak economic fundamentals and volatile rand.
That said, South Africa offers a distinct value proposition compared to its emerging-market peers.
This includes a resource mix of single-commodity precious metals, like gold and platinum, and globally integrated, diversified miners that have historically delivered strong performance during market cycles.
The platinum and gold miners have been primarily responsible for the nation’s strong market return over the last year, boosting the nation’s coffers by billions.
Investors shifted from mid-cap stocks to large-cap stocks, and elevated precious metals prices have pushed single-commodity gold and platinum mining companies higher on the JSE.
Value for South African investors
Despite the strong recent performance, the combination of lower prices and underappreciated market fundamentals suggests that a shift in sentiment could further unlock value creation.
Morningstar stated that South Africa is well-positioned, with an improved fundamental outlook following the formation of a coalition government in 2024.
The nation is also buoyed by its independent central bank, as well as public /private partnerships that have addressed the power supply challenges.
While South African gold and platinum miners have delivered strong performance, Morningstar backed diversified mining companies.
These miners include BHP, Anglo American, and Glencore, which trade on the JSE via secondary listings and allow investors to participate in a fundamentally driven commodity rally directly.
“While gold and platinum miners are more fully priced, the diversified mining opportunity set still offers investors attractive expected returns that are not especially evident at the aggregate index level,” it said.
South African financials also offer the most attractive upside for local rand-based investors, with the Big Five banks, FirstRand, Standard Bank, Absa, Capitec and Nedbank, trading at reasonable valuations.
These banks are expected to deliver real returns of nearly 8% and have strong fundamentals, despite a weak local economy.
Local investors can also have a cheap access point to Tencent via Naspers, with local investors benefiting from a rand-based entry point into a high-quality, wide-moat business.
Not enough for international investors
While buying local may be suitable for South African investors, this is not necessarily the case for international investors.
Although there are attractive valuations potentially compensating for increased liquidity and currency risk, the opportunity cost of allocating capital to South Africa over other emerging markets is high.
Speaking to BusinessTech, Morningstar Chief Research and Investment Officer, Dan Kemp, said that the South African market is priced at fair values, while markets like Brazil and Mexico appear cheaper.
South Korea and China also provide access to a higher-quality technology opportunity set than South Africa does.
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