Strong Q3 Performance
South African stocks are experiencing their best third quarter in 11 years, and investors believe the upward trend will continue. The FTSE/JSE Africa All Share Index has risen approximately 10% over the past three months, achieving 13 record highs and outpacing gains in MSCI Inc.’s emerging-market equities index.
Key Drivers of Growth
The surge has been largely driven by Naspers Ltd., a major tech investor with significant exposure to China. The company’s stock has surged following recent efforts by Beijing to stimulate its economy. Additionally, banks have contributed to the rise of the main index, fueled by optimism surrounding falling interest rates and a market-friendly coalition government that could spur economic growth.
Peter Takaendesa, head of equities at Mergence Investment Managers, stated, “The start of the global interest rate cutting cycle is a welcome relief. We are finding good valuation support for many high-quality companies.”
Government Reforms and Monetary Policy
The recent establishment of a national unity government after May’s elections has heightened hopes for solutions to the energy and transportation challenges that have plagued Africa’s most industrialized nation. On September 19, the South African central bank cut interest rates for the first time since 2020, as inflation continues to decline.
Goldman Sachs Group Inc. strategists, including Kamakshya Trivedi, expressed optimism about South African equities, stating, “Despite strong gains, we see further room for outperformance, aided by front-loading of rate cuts.”
Positive Investor Sentiment
Investor sentiment is highly positive. According to Bank of America Corp.’s September fund manager survey, a record percentage of respondents anticipate significant government reforms that would support the rand and encourage monetary easing.
“A strong 67% of managers believe local equities are undervalued, signaling potential growth opportunities,” wrote John Morris, a South Africa strategist at BofA. The remaining managers see more value in bonds.
Sector Preferences and Cautions
The survey indicates a preference for sectors linked to the domestic economy, such as banks, fashion retailers, and general companies. In contrast, sectors like chemicals, platinum miners, and real estate have less favorable outlooks.
However, some market participants caution that it may be too early to be overly optimistic about China’s economy. Additionally, the South African index’s 14-day relative strength index is trading at overbought levels, suggesting potential weaknesses ahead.
As of 10:18 a.m. on Monday, the South African benchmark was down 0.2% in Johannesburg.
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