Market Update: Reasons for SA Investors to Be Hopeful?

Stock markets took a breather in the second half of October in anticipation of the US elections. The S&P 500 flattened out in the second half of October, leaving it less than 1% higher for the month, while the SA All Share Index gained 0.5%. Both markets have, however, notched up healthy double-digit gains for the year to date.

Domestic financial markets will be driven by the S&P 500’s election-related ups and downs in November. However, there are several reasons to be optimistic about South Africa’s longer-term investment outlook.

GNU era scorecard

The SA stock market has been riding high on positive sentiment since the formation of the Government of National Unity (GNU), which passed its 100-day mark in early October. Investors, particularly foreign investors, remain cautiously optimistic about the new coalition government’s performance but need to see more concrete evidence of policy progress before they are all in.

IMF vote of confidence

The IMF’s recently released economic outlook report for Sub-Saharan Africa painted an encouraging picture of South Africa’s economic achievements. While the Fund did urge the central bank to implement further rate cuts, it said it was encouraged by recent trends and speedier economic reforms that put the country in a position to make the most of global monetary policy easing and lower inflation.

Proactive investment drive

Deputy Minister Paul Mashatile wooed foreign investors during a week-long roadshow in the UK and Ireland in early October. His main message was that the government understands the need for more private investment in sectors such as energy, water and infrastructure and welcomes foreign investment.

Inflation surprises positively

The latest inflation data highlights that the SA Reserve Bank’s inflation fight is yielding better-than-expected results. Consumer inflation fell below the 4% mark for the first time since 2021. However, the central bank can be expected to be cautious, given the inflation risks associated with recent geopolitical events.

GNU delivers on fiscal promises

The coalition government has consistently committed to delivering on its fiscal goals. Although October’s Mid-Term Budget fell slightly short of expectations, that commitment should keep National Treasury on track to stabilise debt at 75.5% by 2025/26 versus the 75.3% pencilled in at the February Budget. This will be a crucial milestone because lower debt repayments unlock money to spend on other critical areas, including job creation, education, social spending and service delivery.

Closer to getting off the grey list?

The Financial Action Task Force (FATF, a global anti-money laundering body) shared the good news that South Africa has “largely addressed” eight outstanding actions that stand in the way of us being removed from the grey list. That leaves six to address before February 2025. These are the most challenging and include the government proving it is investigating and prosecuting complex crimes.

The bottom line

South African financial markets are historically subject to the vagaries of global risk appetite. However, an improving fundamental economic picture is setting the country up for success when foreigners do turn their attention to emerging markets – and SA can show it is one of the most attractive investment destinations in the world right now.

Copyrights FinDotNews