Standard Bank believes SA stock valuations remain compelling

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JIMMY MOYAHA: This morning, 10 February 2025,  the Standard Bank Group, through its chief economist, Goolam Ballin, provided the market with an indication of its thoughts on the South African economy and how that economy could be shaping up or going into the year…. Of course we have expectations of interest-rate cuts and… of some of the other developments from an African perspective as well as from a global perspective.

I’m joined on the line now by the Standard Bank Group’s chief economist, Goolam Ballin, to look at this and see what to make of it. Goolam, lovely having you on the show. Thanks so much as always for taking the time. The year 2025 was certainly interesting, and 2026 promises to provide as much drama, insights and, I suppose, potential opportunity from a markets perspective. How are you viewing the South African story, and how does that relate to what’s happening in the rest of the world?

GOOLAM BALLIN: Jimmy, I wouldn’t deny that we may have good episodes of drama during the course of this year. However, I think what we can say is that the events of 2025 gave us a greater sense of predictability, which we take into 2026. I think predictability is a nice alternative to perfection – and predictability in terms of a few things. We do know that geopolitics is at the core of influencing financial markets and real economies. We also know the playbook of Donald Trump in the sense that he’s transactional, allies are optional, and he will weaponise trade.

But we also know that he will recant, he will baulk if there is going to be damage to the United States economy.

Certainly, I would say, predictability has improved from a year ago. Also, there has been material reorienting of supply chains around the world to guard against the impact of US tariffs. We also have the tailwinds of easier monetary policy as well as lower interest rates across many key markets. That’s also adding to the tailwind that takes us into what we predict will be a steady – if unspectacular – 2026.

JIMMY MOYAHA: Goolam, what is South Africa’s value proposition in 2026 to international markets? Whether we’re looking at it from attracting foreign direct investment or as a return profile, how does South Africa position itself in the international space with the performance that we had in 2025 going into this new year?

GOOLAM BALLIN: Jimmy, you used the word ‘value’ in the opening gambit of that question, and I like it because ultimately it is about valuation.

Now, let’s just look at South Africa’s stock market. Yes, it rallied significantly more than 30% in 2025 – and in dollar terms more than 50%. But, having said that, I think many would argue that South Africa in terms of peer markets remains cheap. In other words, valuations remain compelling, premised on the type of earnings South African firms are likely to generate. And this is not just mining firms, for example because of elevated commodity prices, but the industrial economy, the industrial sector, the retail sector has its darlings, and the financial services sector continues to generate handsome returns.

So, in that respect, I think from a valuation perspective, alongside the idea of an accelerating economy – even if it is mild and modest – augurs well for stocks.

With respect to bonds, last year was a fabulous year with a very significant fall in the yield curve, hence the appreciation in the price of bonds. There’s probably not much more to go further – given, as I say, the already significant advance.

That said, you’ve got yield, let’s say 10-year yield, at around a little more than 9%. And there are those who are of the opinion that it can still decline to, let’s say, 8.75%, therefore undergirding the proposition of still-positive return from the bond market. So South Africa’s bonds in South Africa’s financial markets and portfolio investments – at least as I said through the mathematical valuation – still appear enticing.

I’ll just conclude by saying that South Africa is under-owned by international investors. At its peak some years ago, foreign investors owned about 45% of our bond market and a similar figure of our equity market – and that’s fallen to the vicinity of 25%. So they have exited for the past ten years. They’ve 1770756250 been coming back. And I suspect we even don’t have to go to 45% of foreign ownership share – if we’re just going to the 30%, it alludes to a fair share of foreign capital that could be drawn into South Africa from the position of, as I described, being under-owned.

JIMMY MOYAHA: Goolam, before I let you go, I want to look at the local picture. South Africa’s real wage growth probably hasn’t really exceeded the 4% mark for the last 10 years. Are we finally at the point % to 3%. In other words, 2% to 3% real growth is basically saying individuals at a national level are getting salary increases 2% to 3% above inflation which, I think generally speaking, no one is going to scoff at. It represents a respectable settlement. A 4% certainly would be healthy, but 2% to 3%, given historical precedent, I think is something to be cheered.

And of course, when complemented by lower debt-service costs as a function of falling interest rates, supplemented by improved balance sheets as a function of the stock market rally, people looking at their direct stock portfolio holdings – but also people reflecting on their monthly or quarterly pension fund and provident fund statements – will enjoy the feel-good factor from elevated asset prices, which then shapes behaviour.

I think it’s a clutch of forces meaning real incomes, lower interest rates, improved asset values and modest employment gains – which help to secure the base of spending. When combined, these elements augur somewhat favourably for the retail environment this year.

JIMMY MOYAHA: Much optimism remains in the South African story as we head into 2026 – even with the performance of 2025. Hopefully that optimism translates from an investment point of view.

Thanks so much to Group Chief Economist at the Standard Bank Group, Goolam Ballim, for joining us to share his thoughts on the South African economy and the global economy.

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