Money flooding into South Africa

Investors are pumping money into South African assets, with JSE indices and government bonds experiencing significant rallies in the past week. It is due to optimism surrounding the formation of a Government of National Unity (GNU). 

This is feedback from Old Mutual Wealth investment strategist Izak Odendaal, who explained that this rally may be longer-lasting than Ramaphoria five years ago. 

Odendaal cautioned that the newly inaugurated GNU under President Cyril Ramaphosa will not solve most of the country’s problems. However, it can address a handful of big blockages that hinder economic growth. 

It has also placed adherence to the Constitution at the centre of its agreement and professionalising the public service.

The question remains whether it will be able to encourage investors and entrepreneurs to risk capital in search of better long-term returns. 

We’ve already seen the positive impact of private sector participation on electricity supply – three months have passed without load-shedding. 

This doesn’t mean load-shedding is gone for good, but it is unlikely to return to anything near the dire levels we saw in 2022 and 2023. 

Progress is also being made at Transnet, and encouragingly, its current leadership is aligned with government policy to boost private-sector participation. 

The penny seems to have dropped that if the government includes, rather than excludes, the private sector in infrastructure provision, there is better infrastructure and considerable investment spending. 

These green shoots, coupled with optimism surrounding the GNU, have resulted in a strong rally in South African assets, as shown in the graph below.

This rally will likely continue with Bank of America’s latest fund manager survey showing that 59% of managers are bullish on equities despite the ongoing uncertainty surrounding the GNU talks.

71% of managers are optimistic about equities for the next three to five years. Moreover, 82% are likely to bring back offshore funds if domestic returns look superior.


Not a false dawn

Odendaal said that while there have been false dawns before, this time, there is a sense that things will be different, considering the steep decline in ANC support and the progress of reforms. 

The period of “Ramaphoria” when Jacob Zuma was replaced as state president by Cyril Ramaphosa in 2018 did not last very long, despite the flowery rhetoric of a “New Dawn” and “Thuma Mina” (Send Me). 

This is partly because global market conditions turned unfavourable and partly because Ramaphosa struggled to get a grip on his divided party. 

The biggest reason is probably because the depth of destruction during the Zuma era was much worse than most people initially realised.

Key institutions from SARS to the NPA were gutted, while SOEs were saddled with unsustainable debt and riddled with corruption. 

Cleaning up this mess took time and met considerable resistance, and unfortunately, there was collateral damage. 

For instance, the emphasis on improved maintenance at Eskom after 2018 meant that load-shedding was worse under Ramaphosa than under Zuma, hobbling the economy. 

As noted earlier, the 2024 New Dawn is different in that key reforms are already underway. The new government just needs to keep its foot on the accelerator and not hit the brakes. 

But no one should be unrealistic, if everything was easy, it would have been done by now. There will be disagreements among GNU members along the way.  

When investments are cheap, people are tempted to wait until there is a clear catalyst that will unlock the value. 

In reality, the catalyst is usually unpredictable. This means that a valuation-based investment process requires persistence. 

Just when South African investors grew tired of hearing about being patient, we seemingly had a pro-growth GNU that was not the consensus view ahead of the election. 

This might be the catalyst to spark a long-term rally in South Africa’s capital markets. 


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