South Africa: is the worst of the energy crisis over?

Robert Davy

Andrew Rymer

This year’s election brings uncertainty, but the private sector has shown it can help solve some of South Africa’s long-term challenges.

• Robert Davy, emerging Market Equities Fund Manager
• Andrew Rymer, CFA, Senior Strategist, Strategic Research Unit

We discussed our favourable view of South Africa in April of last year. While the market has underperformed wider emerging markets (EM) since then, there have been some positive developments in line with our thesis. The private sector response has started to gradually ease the electricity crisis, with both the number of days and severity of loadshedding (energy rationing) falling. Meanwhile, bond yields globally and in South Africa have fallen from peak.

Broader reform has continued to be slow. Meanwhile, the logistics situation has seen deterioration, with ageing infrastructure, inefficiencies and other factors continuing to hamper capacity at Transnet, the state-owned enterprise (SOE) which manages ports, rail freight, and pipelines.

With elections approaching, and a potential pickup in uncertainty, is there reason to be more cautious? We assess the outlook for South Africa.

Why South Africa has lagged EM since April last year

There are various drivers of underperformance since we published our last note in April 2023. Allegations of arms provision to Russia sent equities down by almost 15% in US dollar terms in May last year. The energy crisis saw further deterioration, before seeing improvement more recently. Meanwhile, the market’s sensitivity to US interest rates led to some weakness in Q3 as US rates spiked. Weaker metals prices and performance from the largest index stock, Naspers, which is largely driven by its holding in China’s Tencent, were notable drags on market performance over this period.

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