End of an era for South Africa’s stock market 

South Africa’s Johannesburg Stock Exchange (JSE) has experienced ten consecutive years of net outflows from foreign investors, with many dumping local stocks in favour of opportunities elsewhere. 

This has been a result of South Africa’s declining economic fortunes, with growth stagnating, government debt surging, and individuals steadily becoming poorer. 

However, there are signs that this devastating era is coming to an end, with the country’s economic prospects expected to improve in the coming years and the government’s debt burden set to stabilise. 

These signs are concrete, with investors and rating agencies taking notice. This is likely to result in foreign investors returning to South African assets, ending a decade of outflows. 

Morningstar South Africa’s Michael Dodd and Sean Neethling recently outlined South Africa’s improving prospects in the asset manager’s 2026 Global Outlook Report. 

Dodd and Neethling explained that improving fundamentals, such as economic growth and a reduction in government debt, are set to unlock significant value in the future. 

This is coupled with increased interest from investors in the local exchange due to a rise in commodity prices, which have made mining companies more attractive. 

As a result, a decade of underperformance from local shares is set to come to an end in the near future, with the JSE All Share Index posting a 42% return in US dollars for the year-to-date. 

Dodd and Neethling said that this performance has largely flown under the radar of major international investors, with many waiting for much faster economic growth before committing capital to the country. 

South Africa is also a relatively small equity market by global standards, with it only making up 3% of the emerging market index, which is dominated by China, India, Korea, and Taiwan. 

This makes it difficult for large international investors to pump money into local shares, with the exchange unable to absorb the amount of money required to move the needle for these investors. 

South Africa also has a decade of bad news to overcome, with the country’s economy stagnating since 2010. Over the past 15 years, it has grown at an average annual rate of 1.1%, which is far below the emerging market average of 4.5%. 

This has resulted in international investors shunning the JSE, with it experiencing ten consecutive years of net outflows. 

Despite delivering long-term dollar-based real returns comparable with the US equity market, the short-term investment case has been impacted by weak economic fundamentals and a volatile currency, Dodd and Neethling said. 

The hidden gem

Dodd and Neethling said that South Africa is approaching 2026 as a hidden gem among emerging markets, with it offering substantial opportunities for investors. 

Crucially, South Africa provides a different value proposition to its fellow emerging-market peers, due to its well-developed financial system and unique mix of mining companies. 

South Africa’s resources sector is made up of single-commodity precious metal miners, which are increasingly rare, and some large diversified miners.

Both kinds of mining companies have delivered strong resources, albeit at different times. What is unique is that the single-commodity miners provide an opportunity to investors for leveraged exposure to particular metals. 

The South African equity market has delivered strong performance and has seen its own rotation in 2025. Investors have shifted from mid-caps into large-cap stocks, and elevated precious-metals prices have pushed mining companies higher. 

Despite strong recent performance, the combination of lower prices and underappreciated market fundamentals suggests that a shift in sentiment could further unlock value through increased liquidity and international investor flows. 

South Africa is well-positioned, with an improved fundamental outlook, thanks to the formation of a coalition government in 2024, an independent central bank, and public-private partnerships that have addressed the power supply challenges.

For rand-based investors, South African equities are priced to deliver higher expected returns than both emerging- and developed-market equities, Dodd and Neethling said. 

Accessing this opportunity set through the JSE allows investors to directly invest in the parts of the market that trade at the most attractive valuations, particularly globally diversified resource companies and well-capitalised banks. 

In addition, the cheaper access point into Tencent through the combination of exchange-listed Prosus and Naapers provides investors with a rand-based entry point into a high-quality, wide-moat business. 

Local investors can construct a well-diversified basket of equities where the underlying resources, financials, and industrials sectors provide differentiated payoff profiles and access to offshore earnings without taking on additional currency risk. 

For international investors, though, the opportunity is somewhat less tangible. While attractive valuations potentially compensate for increased liquidity and currency risk, the opportunity cost of allocating capital to South Africa over other larger emerging equity markets is relatively high. 

South Africa does not currently feature as a stand-alone position in the Morningstar Global Funds that were launched in September 2024. 

The underlying mix of resources, industrials, and financials exposure can be more efficiently accessed through selective allocations to countries like Brazil and Mexico. 

In contrast, countries like South Korea and China provide access to a higher-quality technology opportunity set than South Africa does.