South Africa’s missing link

While South Africa has seen several critical building blocks fall into place in the past year, the key catalyst needed to turn the country’s fortunes around – economic growth – remains elusive.

If South Africa can achieve faster economic growth, billions in potential investment capital will be unlocked, and sentiment towards the country will improve.

This would, in turn, filter into various facets of the economy, including company earnings, consumer spending, and broad investor confidence, boosting SA Inc altogether.

This is according to Sanlam Investments Multi-Manager’s head of local manager research, Mothepu Mothae.

Mothae explained that the recent rally seen in the JSE, which has put the All Share Index (ALSI) at a record high, is narrower than some may think.

“If you look under the hood of the recent rally, it’s not necessarily driven by SA Inc. It’s been driven by a specific defensive, risk-off sentiment globally,” he said.

“This isn’t a vote of confidence in South Africa just yet. Rather, we are a major beneficiary of external factors, particularly the strong performance of gold and platinum group metals (PGMs).”

He pointed out that, in 2025, gold and platinum prices are trading significantly higher at 62% and 84%, respectively.

These rallies have benefited gold and PGM counters, with some delivering up to triple-digit returns.

“Together with select rand-hedged stocks, these sectors have accounted for most of the index’s gains in 2025,” he said.

However, the same cannot be said for SA Inc stocks like discretionary retailers, banks and insurers. For example, retailers like Truworths, Mr Price and The Foschini Group are down 48%, 29% and 46%, respectively. 

“We’re seeing central banks accumulating gold as a mechanism against dollar weakness. This has created a powerful theme that has lifted our resource counters,” Mothae said. 

“However, many domestic SA Inc companies, the retailers, the banks, the industrial firms, are still trading at levels that present significant value, as they haven’t participated in this narrow rally.”

The graph below shows the performance of the JSE ALSI over the past year.

Boosting SA Inc

According to Mothae, the key to achieving stronger growth in SA Inc stocks lies in unlocking faster economic growth.

He explained that, with South Africa’s economic growth still hovering near 1%, much of the potential investment capital, both local and foreign, remains on the sidelines.

“Growth is the biggest thing that will ensure the positive sentiment trade comes through sustainably,” he said.

“When we see a clear path to higher growth, the capital waiting on the sidelines will be deployed, and that’s when SA Inc will truly begin to re-rate.”

Positively, Mothae said several critical building blocks are falling into place for South Africa, which are improving the country’s underlying investment case.

In particular, he highlighted three recent positive developments that count in South Africa’s favour.

Firstly, Mothae pointed to South Africa’s exit from the Financial Action Task Force’s greylist in October 2025, which he described as a “monumental achievement”.

“Doing business under grey listing adds a huge compliance risk and can take you out of the game,” Mothae said.

“The removal of this barrier is a massive positive tick, improving sentiment and reducing friction for cross-border investment.”

Secondly, Mothae praised South Africa’s recent energy and logistics stability, particularly the end of persistent, high-stage load-shedding.

He said this has been a significant boost for economic productivity and business capex. In addition, similar improvements, though slower, are being seen in logistics at Transnet.

Lastly, Mothae said South Africa’s improved credit outlook from major ratings agencies like S&P Global is a good sign. “While an upgrade to investment grade is still some way off, the trajectory looks positive,” he said.

However, Mothae said these positive developments will not have the desired effect without being accompanied by stronger economic growth. 

“Despite these positive developments, the ultimate trigger for a broad-based re-rating of SA Inc stocks remains elusive – economic growth,” he said.

“That’s the catalyst that will filter into company earnings, consumer spending, and broad investor confidence.”