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SIMON BROWN: I’m chatting with Sanisha Packirisamy, chief economist at Momentum. Sanisha, I always appreciate the time. The South African Reserve Bank’s November 2025 Financial Stability Review [FSR] identifies potential AI risks. I want to touch around those risks of course, but what is the FSR report?
SANISHA PACKIRISAMY: Hi Simon, and thank you so much for having me on the show. What we have from the South African Reserve Bank twice a year is a financial stability review. Basically this means that the South African Reserve Bank actually has a dual mandate. The first portion of that, which we know quite well given the interest-rate decision meetings we usually hear, is to maintain price stability in the economy.
But the second, and I think it’s less well known in the broader domain, is that they are there to also enhance financial stability. So this report that they publish twice a year is to monitor and review the risks to financial stability in South Africa, how they can mitigate some of those risks and look at the strengths as well as the weaknesses of the financial system.
So the FSR is also quite a balanced report because it does take into account what we have done well.
SIMON BROWN: That’s a great point. And one of the things that they identify as a potential risk is AI. This is not necessarily AI directly but the Mag Seven stocks, for example, 35% of the index, [with] AI data centre spend surging. [The Sarb] is worried around that – and not as it’s going up. But if it turns on us and you see a correction, it could spill into global markets. It’ll certainly spill into South African markets.
SANISHA PACKIRISAMY: 100%. So it’s really about the concentration of those technology stocks that tends to increase systematic risk in the system. When we look at the so-called Mag Seven [Apple, Google parent Alphabet, Amazon, Facebook owner Meta, Microsoft, Nvidia and Tesla], their weight in the S&P 500 index has basically tripled over the last decade. That weighting started off at about 11% in about 2015 and is now sitting at 35%. Part of that is because they’ve had strong earnings and they’ve got this massive dominance in digital and technology-related products.
But of course there has also been this big wave of global enthusiasm for artificial intelligence and we have seen in the past that this can potentially be a bubble territory. I think that risk can then spill over into the rest of the global economy – and that can have some big uncertainties for smaller open economies like South Africa.
SIMON BROWN: That’s the key point. We don’t have AI stocks on our market, but it’s that spillover effect. It can weaken the rand. We will see money fleeing emerging markets, asset prices under pressure. We are almost collateral damage, but that damage can be severe. In many senses the 2008/9 crisis had nothing to do with us, but we felt the impact.
SANISHA PACKIRISAMY: Definitely. So whenever sentiment globally turns sour, that risk-off sentiment tends to play out in the markets that are high beta, and South Africa is one of those high-beta plays. So when emerging markets do poorly because they are perceived as being higher risk, South Africa tends to take the beating as well.
How that effectively happens is that when that risk-aversion spikes and people get a bit jittery around market developments we find that investment outflows happen from emerging markets like South Africa. It also tends to correlate then with weaker currencies and investors demand a higher risk premium for holding South African stocks or South African bonds. That level of market volatility can negatively affect asset prices across South African asset classes.
SIMON BROWN: Hence the tech sector. And that concentration becomes a vulnerability to financial systems, ourselves included. [The Sarb] did have an interesting point there. They talk around the underlying productivity impact actually being limited. An MIT [Massachusetts Institute of Technology] study says that firms are spending, but most of them are not actually finding any measurable benefit from their spend. That is to me perhaps part of the key point of that worry.
SANISHA PACKIRISAMY: This is the big worry here. So in order to ascertain whether or not the artificial intelligence boom is actually being felt in the real economy, the only real measure that can capture that is whether or not productivity gains have been experienced to the same extent.
We’ve seen a lot of the spending happen. We know that data-centre spending, as an example, was one of the primary reasons that we had fixed investment actually increasing in the United States this year. But has it actually translated into any productivity and economic-related gains on the ground? That is not yet evident.
So it can mean that this bubble could potentially run out of steam at some point, because you’re not seeing those gains filtrating into the rest of the economy.
Another angle is that artificial intelligence and this technology boom is very heavily dependent on energy – and I think there’s still a very big question mark out there as to whether markets like the US have enough energy capacity to sustain this level of the boom in artificial intelligence.
SIMON BROWN: Yes. I was reading an article recently that said Texas needs to add as much energy as California in the next decade – and I don’t know how that possibly happens.
If we take a wider picture from this report, obviously the AI concerns – we’ve been speaking about that – other than that our system is, they say, assessed as resilient. Our financial sector remains well positioned and broadly very resilient, notwithstanding potential outside threats.
SANISHA PACKIRISAMY: I think, more importantly, they assume that this is going to continue for the next year period. So this report basically is a reflection on the past six months, but it also gives us a bit of an indicator of what’s going to happen over the next 12-month period. And they believe that, according to all the risks that they look at – which are cyclical financial risks or things that move in conduit with economic and financial cycles, things like structural and perpetual risks, things that are not affected by economic cycles but are rather influenced by global dynamics or our own financial system or how the system is being innovated for the future.
And then they also look at operational and event risks. And, based on all these categories, by and large most of these risks have receded since the last report was produced in June.
So [we are] sitting relatively comfortably, even in a world where geopolitical tensions and … are still quite high.
SIMON BROWN: There is that. I’m never going to second-guess the Sarb, but in this case there is evidence on the ground. We’ve got the ratings upgrade. We’re still junk but moving in the right direction – the new inflation target, the medium-term budget policy statement, GDP at a low bar. There is a lot to say it’s ‘cautious optimism’. We are moving in the right direction; slowly, yes, but it is certainly happening.
SANISHA PACKIRISAMY: There is an inkling of good news just in time for the festive season, I guess. But I think that all these positive attributes in the economy suggest that we are finally turning the corner.
As you mentioned, we are coming off quite a low base, but I don’t think we’ve had such a good spate of news for a number of years. That could then lead to higher levels of both business and consumer confidence, which we know is the cheapest form of stimulus – as the president has told us in the past.
That can become quite reinforcing for further economic growth prospects.
SIMON BROWN: Absolutely. It is, as you say, a low base. But we will take the good news – particularly, as you say, as we head into the holiday season.
Sanisha Packirisamy, chief economist at Momentum, always appreciate the insights.
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