South Africa’s markets are on the rise, but sustained gains depend on real economic growth. Picture Credit: Vusithembekwayo
By Aisha Zardad
South Africa – South African markets are enjoying a surge of optimism unseen in years, but its sustainability depends on one factor: economic growth.
Interviews with four market participants in Cape Town reveal a shared concern: South Africa’s sluggish economy remains the biggest hurdle preventing stocks from sustaining their recent rally. So far, gains have been driven by a narrow segment of the market, with mining companies benefiting from record gold and silver prices.
Jithen Pillay, portfolio manager at Allan Gray Ltd., said South Africa needs clear evidence of corporate earnings strength to sustain momentum after the stock market soared nearly 40% last year.0kl “We’re focusing on companies with global revenue streams, like Standard Bank Group Ltd., which is expanding in Angola, Ghana and Kenya.”
Strong gold and platinum prices accounted for much of last year’s 33% earnings growth, while domestic sectors saw a more modest recovery. Mining companies alone posted a 112% increase, according to Bloomberg data. Analysts expect earnings growth to slow to 7.2% in 2026.
“The market is watching to see whether economic reforms can broaden growth beyond the mining sector,” said Hannes van den Berg, portfolio manager at Ninety One Plc. “If GDP growth reaches even 2%, it could unlock substantial operating leverage for industrial and cyclical companies.”
Government reforms in focus: Finance Minister Enoch Godongwana is set to outline key reforms in his upcoming budget speech, which market participants say will be crucial for sustaining investor confidence. Economic growth has struggled to surpass 1% over the past decade, far below the 7%-plus rates achieved during the last commodities supercycle in 2006. Bloomberg forecasts expansion of around 1.6% in 2026 and 1.9% in 2027.
While foreign investment is pouring into South African equities at rates not seen in two decades — with non-residents net buyers of Johannesburg-listed shares to the tune of R658 million a day — analysts caution that much of the rally depends on commodity cycles and government policy.
“South Africa has become more investable than a few years ago, but elevated commodity reliance and political risks remain,” said Gustav Schulenburg, portfolio manager at Old Mutual Investment Group.
Banks remain a core holding for equity managers, particularly those with diversified earnings streams. Outside financials, companies with offshore revenue or defensive characteristics — like British American Tobacco Plc and Anheuser-Busch InBev SA/NV — are attracting interest for their hard-currency earnings and resilience in volatile markets.
Retailers and industrial companies that have lagged the broader market are also on the radar, as portfolio managers believe internal efficiency improvements could lift earnings even in a modest growth environment.
“Growth is the real lever,” Pillay said. “If it accelerates, companies benefit. If not, self-help measures can still drive improvement, but the economy will ultimately determine the sustainability of these market gains.”
Makes professional guidance feel necessary.