Why South African Equities Are Gaining Ground Despite a Limping Economy

Mining shares, financials, and industrials push the JSE towards record highs, but does it mean the economy is healing?

At a glance, South Africa’s economy doesn’t paint a picture of prosperity: power supply instability, sluggish GDP growth, and persistent crime. Yet, defying the country’s tough macroeconomic backdrop, South African equities are on a roll and analysts expect even stronger performance over the next two years.

According to Izak Odendaal, chief investment strategist at Old Mutual Wealth, local equities are set to deliver earnings growth of 20% in 2025 and another 15% in 2026. And it’s not wishful thinking, it’s about the math, the market, and a touch of gold fever.

Gold Glitters Again For Shareholders, Not Miners

At the heart of this bullish outlook is South Africa’s mining sector, which is once again flexing its muscles, at least on the stock market.

The price of gold has skyrocketed by 28% this year, with platinum and palladium not far behind. That’s a boon for JSE-listed mining giants like AngloGold Ashanti, GoldFields, Harmony Gold, DRD Gold, and Pan African Resources. These companies are now some of the top six largest stocks on the All Share Index, thanks to gold’s surge.

As a result, consensus earnings growth for the JSE’s resources sector is a whopping 50% in 2025 and 25% in 2026.

But there’s a catch: these gains are more financial than physical. Odendaal cautions that these strong performances are not linked to increased mining output or job creation. Mining production continues to be hamstrung by infrastructure bottlenecks, regulatory confusion, and security issues, problems that have plagued the industry for over a decade.

Translation? The profits are real, but they’re not trickling down to local employment or GDP growth.

The Financial Sector Rides the Inflation Dip

On the other hand, the financial sector is reaping rewards from more grounded improvements: declining inflation and lower interest rates. These trends help banks and insurers breathe easier, with earnings growth forecasts hovering around 9% annually for both 2025 and 2026.

There’s also cautious optimism that South Africa’s inflation target might be adjusted downward, pulling long-term interest rates with it — a move that supports both lending activity and investment sentiment.

Industrials See Strength in Global Exposure

Beyond mining and finance, industrials are proving surprisingly resilient. Companies like Richemont, AB InBev, BAT, Naspers, and Prosus are performing well thanks to their international earnings base, a reminder that much of the JSE’s power comes from beyond South Africa’s borders.

Local retailers, meanwhile, have faced more pressure. Even with slightly improved consumer spending, helped by lower inflation and the two-pot retirement reform, the sector is still cooling off after a hot run last year.

Still, Odendaal expects industrial sector earnings growth to average around 19% in both 2025 and 2026.

So, Is the Economy Healing? Not Quite

Despite all this stock market optimism, Odendaal reminds investors that the stock market is not the economy. For one, government accounts for about a third of GDP but is barely represented on the JSE. Meanwhile, listed companies often generate a large share of their revenue overseas.

Moreover, in tough times, the strongest companies often emerge more profitable, because weaker competitors fall by the wayside. The market, therefore, amplifies both the highs and the lows relative to the broader economy.

In other words: the JSE can shine even when the streets don’t.

A Divergence Worth Watching

There’s no denying that South African equities have momentum. From mining windfalls to financial tailwinds, the outlook is solid. Yet this market optimism masks deeper structural issues failing infrastructure, policy uncertainty, and a widening gap between financial markets and the real economy.

Still, for investors with an eye on earnings, the JSE looks increasingly attractive in 2025 and 2026.

As always in South Africa, it’s a tale of two economies: one on the charts, the other on the ground.

JSE Earnings Growth Forecasts:

• Resources: 50% in 2025, 25% in 2026

• Industrials: 19% annually

• Financials: 9% annually

• Overall JSE: 20% in 2025, 15% in 2026

What’s your take? Is this a market boom or just another gold rush mirage?

{Source: Daily Investor}

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