Signals Advisers Can’t Ignore in 2025
A downward adjustment to GDP growth forecasts, the potential unravelling of the much-vaunted Government of National Unity (GNU), and ongoing erosion of SA-US relations are red flags for international investors considering investing in South African markets. At least, this is your writer’s conclusion following a recent Bank of America Merrill Lynch (BofA) investor roadshow feedback presentation.
Foreign investors show interest, but…
A team of BofA experts assembled online to give feedback on their 2025 Sun City investor conference and field trips to Cape Town and Johannesburg to check out two leading financial services brands. Michael Jacks, Head of South Africa Research: Consumer Industrial reported on a significant uptick in investor interest this year.
The Sun City conference attracted representatives from 39 investor institutions, up from 27 in the prior year. The bank also hosted 47 listed corporates for meetings, up from 37. “We attribute higher corporate attendance this year to higher attendance by foreign investors,” Jacks said.
The news from these interactions was mixed, though financial advisers can take some solace from the fact that South Africa’s listed giants are upbeat about earnings prospects. This means plenty of opportunities for active fund managers to generate decent domestic equity returns from stock picking on the JSE. “The high-level overview from corporate was encouraging; South African corporates remain resilient despite the host of headwinds that they have had to deal with over the last number of years,” Jacks said. Overall sentiment among banks, consumer, and industrial firms was positive, with companies forecasting strong, double-digit earnings growth in 2025-26.
SA GDP growth is not playing ball
These companies cannot rely on GDP growth to get them over the earnings hurdle. BofA recently revised its 2025 GDP growth forecast for South Africa to a mere 1.4% following on from two years of sub 1% growth. “Earnings growth has been driven by innovation, focused investments in online and fintech, and self-help cost-related measures,” Jacks explained. He then offered a whistlestop equity market outlook, signalling bullish optimism for the top companies in the consumer, precious metals, retail, and telecommunications sectors.
Clients who are invested in gold exchange traded funds (ETFs) or Krugerrands can look forward to a further run in the gold price. John Morris, a research strategist for the EMEA region, BofA Merrill Lynch, said the bank had raised its gold price target to USD3500 an ounce. “The focus at Sun City was what South Africa’s listed gold miners would do with the windfall cash; Goldfields is looking at organic and inorganic growth, as an example,” he said. There is also renewed interest in struggling platinum group metal (PGM) producers. Lower electric vehicle penetration globally and supply shortages due to underinvestment would drive PGM prices higher.
Tatonga Rusike, BofA Economist for Sub-Sharan Africa, offered the macroeconomic view. He singled out GDP growth, fiscal risks, and tensions in both the GNU and SA-US relations as key talking points. The economist blamed delays in domestic reforms, rising global uncertainty, and slowing global growth as reasons for the bank’s downward revision to South Africa’s GDP number. “Slower growth has implications, particularly for fiscal revenue,” he said, warning that the revenue gap could expand by approximately R30 billion, and that the trade deficit would widen by 0.3%. This is assuming government takes no action on the spending side; something your writer reckons is guaranteed.
GNU and Trump weigh on markets
Much has happened in the day-or-two since the presentation. Globally, President Trump confirmed a long list of reciprocal trade tariffs. And locally, the process to ram the ruling party’s 0.5% VAT hike budget through Parliament has all but dismantled the GNU. As an aside, and this is your writer’s view, our Parliament has become somewhat of a travesty. South Africa’s elected officials, who purport to have your and your clients’ best interests at heart, stood up and applauded themselves for passing an anti-poor VAT hike, and point-blank ignoring all Democratic Alliance (DA) attempts to consider spending cuts as an alternative.
This is a consequence, dear reader, of having countless king makers in Parliament. The ANC grabbed a victory by simply replacing the DA with a bunch of poorly supported minnows including the IFP (3.85% of the 2024 National Election result); Patriotic Alliance (2.06%); Action SA (1.04%); and the UDM (0.45%). Rise Mzansi, the GOOD Party, Al Jama-ah, the PAC, and BOSA also voted anti-austerity, anti-poor, each having garnered less than 0.5% of 2024 support. It gets worse, with recent news headlines hinting that the ANC plans to oust DA Cabinet Ministers, no doubt increasing their already unrepresentative stranglehold on ministerial positions.
“Market reactions to GNU tensions are negative, and this does not bode well for asset prices, at least for South Africa,” Rusike warned. On the SA-US tensions, he hinted that government might be negotiating in the background, through diplomatic channels, rather than pursuing public fights. One wonders how, given that the SA Ambassador to the US was recently sent packing. It is amazing how quickly a country’s prospects can sour. The presentation hinted that the triple whammy of stalling GDP growth, GNU unravelling, and US trade tariffs could see rating agencies rethink their recent credit ratings upgrades.
Your clients cannot depend on rate cuts
Financial advisers will have to tell clients to brace for a 0.5% VAT increase from 1 May, coupled with a longer wait before the South African Reserve Bank (SARB) announces the next interest rate cut. “Global uncertainty could mean that the central bank remains on hold with the policy rate in coming meetings; this is despite domestic inflation being well within the SARB’s target range,” Rusike said. Another concern is that post-GNU foreign investor interest in South African government bonds will dissipate as the domestic political outlook worsens.
Quality listed companies like Aspen, Bidvest, Bid Corporation, Capitec, Discovery, Foschini, Impala Platinum, Naspers-Prosus, Pepkor, Shoprite, and Tiger Brands will likely navigate the storm. “Company management is seen as resilient and high quality,” said Morris. “They know how their companies operate, they have been in the markets for many years, and they have had to manage through a lot of issues in South Africa.” The aforementioned firms have fobbed off concerns over low GDP growth and remain focused on interventions to support earning growth instead. These shares should underpin domestic equity portfolio returns over the coming years.
One of the major talking points from BofA’s Sun City event was that South Africa’s leading banks, diversified financial services firms, and retailers were leveraging artificial intelligence (AI) to improve their operations. “Foreign investors were blown away by our road trip meetings with Capitec and Discovery; these are world class operators … the private sector is still a very powerful force in South Africa,” Morris concluded.
Recipe for success remains unchanged
Jacks said the bank remained focused on building its franchise to foreign investors. “We are a global bank, and bringing our foreign investors into markets like South Africa is incredibly important,” he said. Unfortunately, these investors are deterred by the poor GDP growth outlook and a potential slowdown in much-needed political reforms. Jacks concluded with some ‘must haves’ to lure investors back in: “we would like to see a more positive growth trajectory and progress on key reforms such as those underway at Transnet, which are key.”
Writer’s thoughts:
As you adjust your clients’ portfolios for 2025, you cannot ignore the warning lights around domestic policy uncertainty and a weakening GDP. How are you factoring these risks into your client conversations? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.
