Economy shows promise but investors are holding steady

South Africa passed many tests of 2025, but like any responsible parent, the investment community is pointing out the areas in which the country can still improve before it opens its purses.

“The mere fact that we’re moving in the right direction is very encouraging,” said Bastian Teichgreeber, Prescient Investment Management’s chief investment officer.

He’s right. South Africa took the energy of the film KPop Demon Hunters lead song, Golden – “we’re goin’ up, up, up, it’s our moment” – and ran with it after a rocky start to the year.

The investment crowd is definitely recognising that the country is on an upward economic trajectory, and the right noises are being made around the golden opportunity in 2026.

Between the greylisting hangover and the government of national unity (GNU) infighting over the past year, local assets were trading like nobody wanted to touch them. But as we move into 2026, the mood has shifted from survival to what the suits are cautiously calling “selective participation”.

The most striking change in the investment landscape isn’t just the vibe, it’s the maths. Teichgreeber highlighted that the “lower inflation risk premium” has been the sleeper hit of the year.

When the Reserve Bank signalled a tighter handle on inflation, moving structurally towards that 3% anchor, the market stopped hyperventilating.

“The reduced uncertainty around macroeconomics and inflation has compressed,” he explained. “And with less risk premium, you can see lower yields, stronger equities and a stronger currency.”

And at least one of the global ratings agencies agrees that this may just be South Africa’s moment. S&P’s decision to upgrade the country’s sovereign credit rating outlook was the backing vocal it so desperately needed.

Living two lives

But 2025 can’t just be graded on economics; the heavy hand of politics played a role. There was a distinct divergence between surging market enthusiasm and the gritty structural reality.

On one side, the GNU effect is real. Markets that were pricing in a total political collapse have had to recalibrate for progress.

According to Momentum Investments, private sector fixed investment grew modestly for a second straight quarter (up 0.1% quarter-on-quarter in the third quarter of 2025).

Momentum’s chief economist, Sanisha Packirisamy, noted the recent uptick in business sentiment and expected that interest rate cuts in 2026 (two cuts of 25 basis points each) could drive further investment by private sector players, especially if strong growth in corporate credit extension is maintained.

“Growth in fixed investment is a key driver for our projected economic growth rate of 1.6% next year. A sustained increase in fixed investment will be key to maintaining the economic recovery and reducing unemployment,” she said.

Business Leadership South Africa CEO Busisiwe Mavuso wrote in her year-end newsletter that the recent 2.1% GDP growth came as a surprise to economists, who had pegged it closer to 1.2%.

This green-shoot momentum is backed by the first overall increase in investment since mid-2023 and a five-point jump in business confidence.

The market is literally voting with its wallet. The National Treasury’s recent bond placement was 3.7 times oversubscribed, a clear signal that foreign capital is hungry for the yield and stability the GNU promises.

Although S&P gave South Africa an upgrade, Moody’s remains cautious, pointing to “persistent structural challenges” including weak state-owned enterprises and ageing infrastructure.

As Mavuso points out, confidence alone doesn’t create jobs – “production catching up with sentiment” does.

And it’s at this point that Teichgreeber throws a wet blanket on the party.

“When everybody stops worrying, that is … when we start to worry,” he says, adding that he sees “a lot of complacency” priced into the market.

The reality is that although local valuations have repriced aggressively, meaning the “easy money” of 2025 has already been made, the starting point for 2026 is significantly tougher.

The global effect

And then there’s the demon we can’t exorcise: the global economy. As a small, open economy, South Africa is, in Teichgreeber’s words, “very subject to the ebb and flow of global capital”.

If the US sneezes or, in this case, if the “magnificent seven” (Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta and Tesla) tech stocks trip over their own artificial intelligence-generated shoelaces, South Africa catches a cold.

Goldman Sachs and BlackRock are already advising clients to diversify away from the US tech concentration risk, which could benefit emerging markets, including South Africa.

The emerging markets ray of light

Grant Webster, co-head of emerging market sovereign and FX at Ninety One, points out that emerging markets have been through a long period of economic restructuring and reform.

“The result is stronger fundamentals at both the macro and micro level. We’re seeing clear evidence of this in market resilience to tariff announcements and other shocks, and the steady rise in sovereign credit ratings across the global emerging markets universe provides further confirmation,” he said.

In contrast to the improvements taking place in emerging markets, several developed economies are showing characteristics historically associated with emerging markets, including rising debt burdens, mounting fiscal concerns and increased policy uncertainty. This is reflecting in higher bond-market volatility.

Webster said: “Today, despite the ‘emerging markets economy’ having lower debt levels than its developed markets counterpart, and its current account being in surplus (the developed markets economy is in deficit), emerging market bond yields are 70% higher. There are signs that capital is beginning to move accordingly.” DM

This story first appeared in our weekly DM168 newspaper, available countrywide for R35.