TLDR:
- South African stocks experiencing strongest third quarter in 11 years
- FTSE/JSE Africa All Share Index up ~10% over 3 months, hitting 13 record highs
- Gains led by tech investor Naspers and banks
- Investors optimistic about government reforms and interest rate cuts
- South African rand reached 20-month high against dollar recently
South Africa’s financial markets are experiencing a surge, with stocks and the national currency showing significant strength in recent months.
The FTSE/JSE Africa All Share Index has posted its most robust third-quarter performance in over a decade, climbing approximately 10% and achieving 13 record closing highs.
This impressive rally has outpaced the gains seen in MSCI Inc.’s emerging market equities gauge.
Leading the charge in this market upswing is Naspers Ltd., a China-exposed tech investor, which has seen its shares soar as Beijing implements economic stimulus measures.
The banking sector has also played a crucial role in driving the main index higher, buoyed by optimism surrounding falling interest rates and the prospect of a market-friendly broad coalition government boosting economic growth.
Peter Takaendesa, head of equities at Mergence Investment Managers, noted, “The start of the global interest rate cutting cycle is a welcome relief and we are continuing to find good valuation support for a number of high-quality companies.” This sentiment reflects the growing confidence among investors in South Africa’s economic prospects.
The installation of a government of national unity following the May elections has sparked hopes for addressing long-standing issues in energy and transportation sectors, which have hindered growth in Africa’s most industrialized economy. Adding to the positive outlook, the country’s central bank implemented its first interest rate cut since 2020 on September 19, responding to slowing inflation.
Goldman Sachs strategists, including Kamakshya Trivedi, expressed optimism about the market’s future performance, stating,
“Despite strong gains, we see further room for outperformance, aided by front-loading of rate cuts.”
This view is echoed by many in the investment community, with Bank of America’s September South Africa fund manager survey revealing record expectations for meaningful government reforms.
The survey also highlighted that a substantial 67% of managers believe local equities are undervalued, indicating potential growth opportunities.
Preferred stock sectors among investors include those tied to the domestic economy, such as banks, fashion retailers, and general companies. However, the outlook appears less favorable for chemicals, platinum miners, and real estate sectors.
In the currency market, the South African rand has reached a 20-month high against the US dollar, further underscoring the growing investor confidence in the country’s economic prospects. This strength in both equities and currency comes amid a backdrop of global market movements influenced by Chinese economic stimulus measures.
The positive trends in South Africa are not occurring in isolation. Global mining stocks have seen a lift, contributing to new highs for major US indices like the S&P 500 and the Dow Jones Industrial Average, despite weak consumer confidence in the United States. Gold prices have also surged, benefiting from a weaker dollar and expectations of further interest rate cuts by the Federal Reserve.
