South African equities set for a strong performance

South African equities are set for a strong performance in the coming years, with analysts expecting earnings growth of 20% for 2025 and 15% for 2026. 

This is primarily due to the expected outperformance of mining shares, driven by the rise in the prices of gold and other precious metals amid increased uncertainty. 

The local financial sector is also expected to benefit from improved economic growth, lower inflation and lower interest rates. These factors will also boost the listed property sector. 

This is feedback from Old Mutual Wealth’s chief investment strategist, Izak Odendaal, who outlined some of the factors driving the performance of local equities. 

Odendaal also explained that the stock market is not the economy, with this improved performance coming amid lacklustre economic growth. 

He stated that global factors are primarily driving the performance of South Africa’s mining shares, and this will not necessarily translate into increased mining production, employment, or local economic growth. 

The local mining sector has experienced a decline in output and employment over the past decade, largely due to infrastructure bottlenecks, regulatory uncertainty, and security concerns. This is negative for the economy, the fiscus and job creation. 

The infrastructure issues are being addressed, but regulatory matters remain a bone of contention, while organised crime continues to be a scourge. 

Nonetheless, when commodity prices jump, so does the profitability of miners, even if there is no increase in production. The dollar gold price has increased 28% this year, while platinum and palladium have increased 22% and 11% respectively.

While South Africa does not produce nearly as much gold as it once did, many miners are still listed on the JSE, including AngloGold Ashanti, GoldFields, DRD Gold, Harmony, and Pan African Resources. 

Some of these shares are now among the top six largest within the JSE All Share Index, and thanks to the rise in gold prices, they have pushed it towards new all-time highs.

This means the consensus earnings per share growth for the JSE’s resources sector of 2025 is 50%, and for 2026 it’s 25%.

This is not as high as it could be due to some commodities being weaker, notably oil. This helps the profitability of most sectors, apart from oil and fuel producers like Sasol. 

The iron ore price is also slightly weaker this year, while coal has fallen some 15%.

Overall outlook for the JSE

The overall outlook for local stocks is strong, with other sectors also expected to produce significant earnings growth. 

The financial sector on the JSE has benefited from lower inflation and declining short-term interest rates. 

Optimism that the country’s inflation target could be lowered has pulled long-term interest rates lower. Consensus earnings growth for the financial sector is around 9% per year in 2025 and 2026. 

Among industrials, the winners this year have been Richemont, AB InBev, and BAT, three large globally focused consumer companies and Naspers and Prosus, which are also effectively global companies. 

Local retail shares have been under pressure this year, despite rising consumer spending from the new two-pot retirement system and lower inflation. However, this follows a strong rally last year. 

Consensus earnings growth for industrials is around 19% per year in 2025 and 2026.

The overall earnings growth outlook for JSE-listed companies is strong at around 20% this year and 15% next year, depending on the benchmark. 

The All Share Index is no longer widely used by fund managers, who generally prefer the Capped SWIX, but is still better known among the general public. 

It is much faster than expected nominal economic growth, but this is always the case. The stock market is not the economy. 

Earnings growth has a bigger amplitude than economic growth on the upside and the downside. Moreover, stock market sectors do not align neatly with GDP sectors, with the government a third of the latter, while the former has a large exposure to overseas revenues. 

Finally, it is worth remembering that the best companies can become more profitable in a sluggish economic environment since their competitors fall away.

The below graph shows the earnings expectations for various sectors of the JSE, courtesy of Odendaal.