JSE’s hidden gems set to shine

South African equity sectors that lagged behind in 2025 are poised for a recovery as the rally in mining stocks begins to cool.

Food producers, retailers and personal-care stocks were among the worst performers on the Johannesburg Stock Exchange last year, even as the overall index returned about 38% in local currency and 57% in dollar terms. 

Mining stocks have been under pressure with gold and silver prices since Friday, after a searing rally over the past year, as commodity prices soared.

That’s benefited domestically oriented stocks, with banks, insurers and food producers outperforming the benchmark over the past few sessions.

Investors are betting the rotation into these sectors will continue as macroeconomic conditions turn more supportive, thanks to the boost South Africa gets from the run-up in precious metals prices and from cooler inflation, a stronger rand and lower borrowing costs. 

There’s some ground to make up: The retailers’ index fell 26% in rand terms last year, while personal care, drug and grocery stores declined 8.4%. The gauges for banks and food producers rose, but still underperformed the wider market.

“What we’ve been seeing is low inflation boosting real purchasing power,” said Patrick Buthelezi, an economist at Sanlam.

“Retail sales should continue to hold at a relatively reasonable level and should grow above gross domestic product.”

Withdrawals through the so-called two-pot pension system — which started in 2024 and allows workers to access part of their retirement savings early — have faded as a tailwind for household spending.

But consumer activity is still expected to prop up growth. The economy will likely expand 1.6% this year, according to the median estimate in a Bloomberg survey.

“The strength in key commodity prices, particularly precious metals, has significantly benefited the value of South Africa’s exports and aided the rand,” said Annabel Bishop, chief economist at Investec.

Gold has repeatedly hit record highs, while platinum prices have surged, bolstering export revenues for a nation that mines both metals.

A confluence of factors is helping sustain activity, including softer oil prices that have aided a significant decline in South Africa’s inflation rate, which averaged 3.2% in 2025 – the lowest in 21 years.

On Thursday, the South African Reserve Bank held borrowing costs at 6.75%, while presenting a cooler 3.3% outlook for inflation for this year, boding well for households.

It previously saw annual price growth averaging 3.5% in 2026. According to the policymakers’ quarterly projection model, the bank has scope for almost two cuts by the end of the year.

Others are more cautious on the outlook for South African householders, including Jee-A van der Linde at Oxford Economics. 

He warned they could face another hit in the annual budget in February if Finance Minister Enoch Godongwana again fails to adjust income-tax brackets higher to take account of inflation.

Still, a decline in food prices for households at the lower end of the income scale will have a beneficial impact on their spending power.

The average cost of the Household Food Basket calculated by the Pietermaritzburg Economic Justice and Dignity Group decreased by 0.6% in January year-on-year.

That could weigh on margins for food retailers, but should aid food producers.

The latter group is set for a turnaround in 2026, supported by softer commodity input costs, investments in manufacturing facilities and a recovery in volume growth as inflation eases, said JPMorgan Chase & Co. analysts Shaun Chauke and Elena Jouronova.

“We see food producers as a better play on the South African consumer story than food retailers,” they said.

Banks and insurers are also expected to benefit from falling bond yields and a lower risk premium.

South Africa’s 10-year government bond yield has declined to around 8% from a 2025 peak of over 11%, reflecting strong demand from global investors after the central bank shifted to a 3% inflation target.

“The bank index is one of the first beneficiaries of the market repricing stocks for a sustainably lower South African risk premium,” said Adrienne Damant, an analyst at Avior Capital Markets.

She added that insurers, which lagged banks in 2025, are likely to outperform this year as the rerating filters through, supported by improving new-business volumes and stronger investment returns.

Money managers say lower borrowing costs will be key to sustaining the recovery. 

“South Africa still has some of the highest real interest rates globally,” said Brendon Hubbard, a portfolio manager at ClucasGray.

“Dropping interest rates would be hugely supportive for the consumer and for getting the housing cycle and investment spending going again.”

With inflation trending lower and markets pricing in further rate cuts, investors are increasingly betting that last year’s laggards may finally have their moment.