Africa-Press – South-Africa. South Africa’s stock market has performed remarkably well so far in 2025, with its MSCI index being among the best performers in the world.
However, this performance papers over some of the cracks beginning to show in investor sentiment towards South Africa’s economy, with investors looking outside of SA Inc. stocks.
SA Inc. stocks are companies that are heavily, if not solely, exposed to the local economy for their earnings, making them reliant on local economic performance for growth and increased profits.
Some of the most notable examples include retailers, the country’s major banks, food producers, and construction companies.
Melville Douglas’ chief investment officer, Bernard Drotschie, explained that investor capital flooded into these companies in the second half of 2024 following the formation of the Government of National Unity (GNU).
The GNU’s formation promised improved returns for investors, based on faster economic growth, continued reform, and better governance.
As a result, investors pumped money into SA Inc. stocks in the belief that the country’s stagnant economy would be revived and these companies would see their earnings grow.
In the last six months of 2024, retailers’ share prices appreciated by 32%, construction companies by 48%, food producers by 29%, and banks by 10%.
All of this was predicated on the fundamentals of these businesses improving within a growing economy as the government implemented key reforms.
In contrast, companies that had significant exposure outside of the country saw their share price performance lag that of their SA Inc. counterparts.
“In the second half of the year, after the elections, South African stocks rerated significantly. Some of the retailers, banks, and food producers saw their share price appreciate rapidly,” Drotschie said.
“On the back of this, we saw appetite for South African assets from foreign investors growing on the back of a story of renewed growth.”
Investors losing patience
Melville Douglas CIO Bernard Drotschie
This momentum has not lasted into the first half of 2025, with investors losing patience with the lack of economic momentum in South Africa.
Over a year since the formation of the GNU, very little positive impact has been seen in the economic data, such as employment numbers, growth, or fixed capital formation.
This may be partly masked by the impact of tariffs on South Africa, but it does indicate a lack of accelerated progress in implementing key reforms and encouraging private investors to allocate capital towards the country.
Drotschie also said the rerating that occurred in the second half of last year would have impacted investment in South Africa, as its assets were now more expensively valued.
However, South African assets are by no means overvalued, with investors preferring to allocate their capital elsewhere for enhanced returns rather than because of the valuations given to local assets.
“I think some investors have lost a little bit of patience with the economic momentum in this country, which has been weak,” Drotschie said.
“We all know that it is difficult to operate here in South Africa, despite the immense potential of the country.”
As a result, investors have been switching out of SA Inc. stocks to other parts of the market where companies are more exposed to faster-growing economies.
This has led to a significant appreciation in the share prices of companies in sectors like telecommunications, mining and tobacco, such as British American Tobacco.
Mining is a unique case, with the sector attracting capital on the back of rising commodity prices and not necessarily an improvement in operating conditions or growth.
“So we have seen a switch out of SA Inc. stocks into other parts of the market, with gold and platinum miners doubling so far in 2025,” Drotschie said.
Drotschie explained that investors will wait for hard economic data showing a recovery in South Africa’s GDP growth before allocating more capital towards the country.
While the current set of reforms from the government is correct, the implementation is taking longer than expected.
For More News And Analysis About South-Africa Follow Africa-Press
