Why SA Inc is tipped to outshine Wall Street

Donald Trump and Elon Musk may not believe it, but South Africa might just outperform the US in key areas this year: the stock and bond markets.

Anchor Capital expects South African equities to return 15% in 2025 in rand terms, with bonds yielding 11%, driven by an earnings recovery among domestically focused companies and improved investor sentiment under the government of national unity (GNU). 

In contrast, US shares could return 6%, though the range of possible outcomes varies widely – from -20% to 12%, according to the Joburg-based asset manager. Equally, global equities, government bonds and corporate credit are forecast to grow by 6%, while international property may yield 5% and alternative investments between 8% and 12%. 

Again, South African assets are set to trump that, with listed property projected to return 11%, and alternative assets 10% to 15%.

Anchor warns that US forecasts are unpredictable, mainly because US President Trump can “spring” surprises that unsettle markets. While his policies are generally pro-growth, much of this is already priced in, meaning any disappointments could lead to selloffs. And as it is, the S&P 500 index is trading at near two-decade highs, so valuations are already high. 

“The fundamentals have continued to improve for South African equities,” Liam Hechter, a fund manager for Anchor, said on a conference call this month. Portfolios overseen by Anchor have been “overweight” SA Inc shares relative to benchmarks for about a year, and managers have not changed their view.

So far, South African corporate earnings have indicated a small resurgence in consumer activity, aided by falling interest rates and lower inflation, which hit a four-year low in October. The two-pot retirement system, which allowed people access to a portion of their retirement savings, also provided the economy with a short-term cash boost.

‘Dependable upside’

“We’re getting quite a lot of upside – and dependable upside – in sectors like banks,” Hechter said. The banking industry could deliver a total return of about 15%, with earnings growing by 10% – except for Capitec, which may post a 20% jump, he said.

The lenders, which on average trade at dividend yields north of 5%, account for a significant weighting in the FTSE/JSE all share index, so any uplift would boost the overall market.

Discretionary retailers, such as Mr Price, Woolworths and Pepkor, are poised for earnings growth of about 20%, though they are rebounding from a low base and constitute a smaller part of the index. However, large industrial companies continue to face challenging conditions, he said.

When it comes to mid-cap stocks, Hechter selected Southern Sun and AdvTech Group as notable for their quality management, Famous Brands because the company is geared to benefit from the pick-up in South Africa, Dis-Chem Pharmacies and Lewis Group for their low earnings base, and WeBuyCars due to a proven business model. 

Naspers has also dropped to attractive levels, said Anchor. This follows a selloff in Naspers’s largest indirect asset, Chinese technology company Tencent, which was added to a US blacklist for alleged links to the Chinese military. This gives investors an opportunity to accumulate more shares in Naspers, Hechter said.

“Coming into the year, we had north of 20% upside” on Tencent, he said. Anchor believes the cloud over the links to the Chinese military will lift, exonerating the company. 

Rand stands firm

As far as the rand is concerned, Anchor is predicting the currency will end 2025 at R18.25/$, slightly stronger than the R18.37/$ at which it traded on Friday, said Nolan Wapenaar, the head of fixed income. Trump’s “America first” push has threatened to push up US inflation, which will delay interest rate cuts. This will ensure the dollar remains strong, putting pressure on the rand.

The rand has recovered since last year’s election, and was on course to post one of the best gains among emerging markets last year, before a bad December saw it losing 2% overall against the dollar in 2024.

To assess the value of the rand, Anchor uses a purchasing power parity model, which looks at how much a fixed basket of goods and services costs in each country. It shows the rand should be trading at a long-term fair value of R13.85/$ to R15.85/$. Historically, however, the rand has traded at a discount to fair value.

Anchor isn’t alone in believing the rand is trading below its fair value; Goolam Ballim, the chief economist at Africa’s largest lender, Standard Bank, also sees the rand as undervalued, estimating its fair value today at between R17.80/$ and R18/$. This year, Ballim expects the rand to average R18.20/$, strengthening to an average of R17.68/$ in 2026.

Much depends, however, on whether the fragile GNU holds. Political parties within the grand coalition, particularly the ANC and the DA, have strong incentives to remain committed to it, even though they will have “clumsy moments”, Ballim said last week. 

The benefits of this coalition government have already begun bearing fruit, notably at power utility Eskom, where an increase in private sector involvement and an end to the rolling blackouts has improved South Africa’s economic prospects. 

In addition, a more results-oriented police minister has taken charge at a time when South Africa’s murder rate is on the decline for the first time in 14 years, providing hope that the country will be able to arrest the runaway crime rate. Transnet has also begun to show early signs of recovery, with slight improvements in freight rail and port efficiency.

The central question, however, is whether this time is different. 

There was a similar bout of optimism in 2017, when Cyril Ramaphosa won the ANC presidency and took office in 2018, but a lack of decisive action in government meant this did not translate into sustained economic growth, said Ballim.

As it is, the financial markets are still confident that South Africa’s post-election recovery is on track: South African bond spreads relative to US treasuries have compressed and not yet widened as they did in 2018, while the JSE’s price-to-equity ratio, which is trading lower than it did in 2018, has been moving upwards. 

Still, private sector investment remains below the levels it hit before Covid. But Ballim believes the government’s focus on attracting the private sector into state-dominated sectors should help stimulate capital formation.

Challenges remain, including water infrastructure, which many fear will lead to “water-shedding”, pressure on the fiscus, and pressure on Ramaphosa from Jacob Zuma’s MK Party.

But if the government persists with reforms, South Africa could see GDP growth of 1.8% this year, which will rise to 3% over the coming years, Ballim said. “So I’m going to use those four very expensive words that many have had to swallow at some point in time,” he said. “This time is different.”

Let’s hope so.

Correction: An earlier version of this article misstated US return projections in paragraph three. The correct range is -20% to 12%, not 20% to 12%. We apologise for the error.