One mistake can cost South African investors dearly

Local investors should think carefully before betting against South Africa’s economy or the market, as the country’s turnaround, though tentative, is taking shape.

In addition, investors should not overlook the attractiveness of local equities, which remain undervalued with strong upside potential.

This is feedback from PSG Wealth chief investment officer Adriaan Pask, who explained that while 2025 was volatile, it also proved to be a strong year for local markets.

This was driven by a variety of positive signals that emerged from South Africa in 2025, including the country’s exit from the Financial Action Task Force’s greylist and a credit ratings upgrade from S&P Global.

Pask added that many of the macro and political constraints that weighed on sentiment a year ago have eased.

In terms of state-owned enterprises, Eskom’s latest results point to a strengthening financial position, and while Transnet has been a significant hindrance to growth, it is also showing early signs of recovery.

Moreover, while the Government of National Unity remains volatile, Pask said it is increasingly showing signs of a more unified policy direction.

“Institutional credibility has also been reinforced by strong and consistent communication from the South African Reserve Bank on policy, inflation, and the potentially supportive outlook for the economy,” he said.

On this note, South Africa’s move to a lower inflation target at the end of 2025 is also expected to bring immense benefits to the economy.

In terms of fiscal policy, things are also looking up for South Africa. While federal spending remains high, Pask said the current fiscal policy reflects a mix of priorities aimed at supporting economic growth.

He added that broader economic indicators are beginning to turn more constructive, including an improved Purchasing Managers’ Index, recovering confidence levels, and vehicle sales that are gaining momentum.

While the global backdrop cannot be ignored, Pask said South Africa is showing strong signs of recovery.

“Combining that with easier monetary conditions means you need to think carefully before betting against the economy or the market,” he said.

Local assets set to shine

Overall, Pask suggested a balanced approach for investors, warning that while risks are high, sitting in cash or waiting for corrections may be even riskier.

“There are still very good businesses generating solid free cash flow at valuations that are not extreme. Positioning defensively while still aiming for growth remains important,” he said.

Pask explained that South Africa, in particular, presents attractive opportunities at affordable levels. 

“While valuations in the US are stretched, South African assets remain cheap, even after a 30% rally in the local market,” he said. 

“Banks continue to pay out very decent dividends, they remain cash-generative, and free cash flow yields are still high. There are opportunities locally that investors can pursue without too much concern.”

“If we do see a US pullback, most markets will likely sell off in a panic, but we expect South African assets to rebound toward more normalised levels.”

South African equities and the rand had a strong performance in 2025. The JSE All Share was up over 38% last year, and the rand strengthened 4% against the greenback.

South African equities and the rand’s strong performances in 2025 can be attributed largely to the commodity boom seen last year.

The soaring prices of precious metals, in particular, served to widen South Africa’s trade surplus, bolstering the rand and JSE-listed mining companies.

Positively for South Africa, it appears that this commodity boom still has some legs, with the World Bank expecting prices for most base metals to continue strengthening in 2026 and 2027.

Interestingly, Pask pointed out that, despite a very strong rand, foreign investors have yet to return to South African equities. 

“They’ve started buying bonds again, but equity flows remain absent. Much of the buying we’re seeing is domestic – driven by improved sentiment among local institutions,” he said. 

“Should US capital begin reallocating into markets that have been ignored for more than a decade, South Africa screens very attractively from a valuation perspective.”