South Africa's financial landscape is displaying green shoots with improving sentiment, yet private capital is holding back, awaiting sustained growth. Experts highlight progress in inflation control and credit ratings, but warn of complacency and global risks. The shift from survival to selective participation marks a cautious optimism as 2026 approaches.
South Africa navigated a challenging 2025, emerging with signs of economic recovery that have boosted market sentiment. After a rocky start influenced by greylisting issues and government of national unity tensions, the mood has evolved toward what investors describe as 'selective participation.' Bastian Teichgreeber, chief investment officer at Prescient Investment Management, noted, 'The mere fact that we’re moving in the right direction is very encouraging.'
Key developments include a lower inflation risk premium, as the Reserve Bank tightens its grip toward a 3% anchor. This has led to compressed uncertainty, resulting in lower bond yields, stronger equities, and a firmer currency, according to Teichgreeber. S&P's upgrade of the country's sovereign credit rating outlook provided further validation, contrasting with Moody's caution over persistent structural challenges like weak state-owned enterprises and aging infrastructure.
Economic data supports the optimism: private sector fixed investment rose 0.1% quarter-on-quarter in the third quarter of 2025, marking a second straight quarter of modest growth. GDP expanded by 2.1%, surpassing economists' 1.2% forecast, as highlighted by Business Leadership South Africa CEO Busisiwe Mavuso. Business confidence jumped five points, and investment saw its first overall increase since mid-2023. The National Treasury's recent bond placement was oversubscribed 3.7 times, signaling foreign interest in the stability promised by the government of national unity.
Momentum Investments' chief economist Sanisha Packirisamy anticipates two 25 basis point interest rate cuts in 2026, projecting 1.6% growth if fixed investment sustains. She emphasized, 'Growth in fixed investment is a key driver... A sustained increase... will be key to maintaining the economic recovery and reducing unemployment.' However, Teichgreeber warns of complacency priced into markets, noting that easy gains from 2025 are over.
As a small open economy, South Africa remains vulnerable to global flows. Grant Webster of Ninety One points to strengthening emerging market fundamentals, including lower debt and surpluses, which could attract capital amid developed market volatility. Despite progress, production must catch up with sentiment to create jobs.
