Africa-Press – South-Africa. Foreign investors are missing out on significant opportunities in South African equities heading into 2026, with them selling over R165 billion worth of local stocks in 2025.
These investors have preferred to snap up local government bonds, which promise an attractive yield and have been bolstered by a strong rand and improving state finances.
In 2026, foreign investors may finally pivot into local equities, which are significantly undervalued despite a world-leading rally in 2025 so far.
Old Mutual Investment Group (OMIG) explained that it is crucial for local investors to position themselves to benefit from this trend ahead of time.
OMIG’s Sehrish Khan and Gustav Schulenburg explained at the firm’s most recent quarterly outlook that global markets have been dominated by US equities for the past decade, driven more recently by artificial intelligence (AI) and the tech sector.
Because of the belief that this trend will continue, many investors are still overlooking emerging market opportunities, particularly in South Africa, which is offering superior, undervalued and quality shares.
The local market, supported by structural reforms and improving economic fundamentals, is looking increasingly attractive when compared to global markets.
Data from 2025 shows that, even when measured in US dollars, South African equities outperformed those of the United States and other developed markets.
Precious metal miners have led the rally, supported by higher gold and platinum prices, while domestically focused companies are attractively priced but remain constrained by the low-growth environment.
“When we looked at purely domestic facing shares in the local economy, South African shares rank very attractively on price-to-earnings ratios relative to other emerging market shares,” Khan said.
“We are cheaper than 70% of emerging markets shares, and that is despite delivering superior returns for shareholders.”
Schulenburg urged investors to understand where we currently are in the global and local market cycle. “No one rings the bell when the cycle is over and about to turn. cycles take a long time,” he said.
“If you look at the past 100-year period, we can’t emphasise enough how abnormal the most recent cycle has been since the Global Financial Crisis,” Schulenburg said.
“This is unlikely to be what we experience in the next 10 years, and if it isn’t, it will be worthwhile taking cognisance of past trends of previous cycles.”
He points to the fact that large-cap US assets have dominated flows over the past 10 to 15 years. While this may continue, it is unlikely to last in the long run.
Looking at historic cycles, the current US cyclically adjusted P/E valuations look stretched and dangerous, with returns being led by a handful of companies.
“What is concerning in a US market driven by a very narrow range of sectors, is that from the last three peaks in the CAPE Ratio, the 10-year nominal and real returns in the US have been negative – leading us to surmise that we are in dangerous territory here,” he said.
South Africa’s appeal
Going into 2026, several factors are strengthening South Africa’s investment appeal, including the undervalued nature of local equities.
Chief among these is an improving fiscal position, with the National Treasury’s policy of fiscal consolidation bearing fruit as the government is set to post its third consecutive primary budget surplus.
“The Reserve Bank and National Treasury have actually done a really good job of keeping our fiscal situation under control, and it seems like things are genuinely improving,” she said.
“Additionally, operational reforms are beginning to alleviate long-standing constraints such as electricity load-shedding and logistics bottlenecks, boosting efficiency and business confidence.”
By contrast, the US equity market, heavily influenced by the “magnificent seven” tech stocks, faces growing risks.
“Technological investment, driven by AI enthusiasm, has supported US economic growth, while consumption has waned,” Khan said.
“The demand for energy from AI-related investments has led to rising energy prices, which adds pressure to consumers, while rising US debt levels and a worsening fiscal position appear unsustainable.”
Emerging markets, on the other hand, have performed really well over this year, with South Africa, Mexico, and Brazil outperforming the United States market.
For investors, this creates a compelling case to reassess allocations. Domestic-facing South African companies have delivered admirable returns despite a constrained economic environment, and ongoing reforms suggest further upside.
Lower interest rates and reduced fiscal pressures are expected to support growth, while undervaluation relative to global peers offers potential for re-rating.
“Even if it’s just an appreciation of the improving economic environment in the form of a re-rating, I think these shares, South African-facing shares, are very attractively priced,” Khan said.
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