The JSE notched up another quarter of gains in the fourth quarter (Q4), capping a stellar year’s performance in 2025. The JSE All Share index placed second amongst the world’s stock markets in 2025, listed by descending order of US dollar-based performance. Performance was powered by commodities producers especially the gold and platinum miners. The gold price finished the year 65% higher than it started, platinum 127%, and palladium 77%, all in US dollar terms. Indeed, the JSE’s bull market was led by a narrow cohort of shares. Out of 121 companies that make up the All-Share index, just 27 managed to outperform the index over the year and only 60% of constituent shares managed double-digit gains.

The Resources 10 index powered ahead by a stunning 144.2% in 2025 leaving the Financial 15 and Industrial 25 indices in its wake, with returns of 27.2% and 19.2%, although these would be excellent returns under any normal circumstances. The All-Share index climbed by 42.4%. Given the rand’s 12.0% gain against the US dollar over the year from R/$18.84 to R/$16.57, the dollar-based return was even more impressive, easily ahead of the MSCI All Country World index’s (dollar-based) 19.8% gain and the MSCI Emerging Market index’s (dollar-based) 32.9% gain. Over the year the Reserve Bank’s repo interest rate dropped from 7.75% to 6.75%, which together with the strong rand and strong foreign investor demand for emerging market bonds, helped the RSA 10-year local currency gilt yield reduce from 9.03% at the start of the year to 8.03% by year-end.

Emerging markets enjoyed a good year generally, helped by broadening global growth and rising trade volumes, strengthening capital flows, a weaker dollar and favourable terms of trade. South Africa benefitted from cyclical economic improvements as well as positive structural shifts. There was progress on economic reforms particularly in improved energy availability, port and rail freight logistics, with President Ramaphosa announcing efforts to accelerate reforms through Operation Vulindlela. The Medium-Term Budget Policy Statement (MTBPS) delivered in November was well received for its fiscal prudence and its projection for the government budget deficit as a percentage of GDP to decrease from 4.7% in fiscal 2025/26 to 2.9% in fiscal 2028/29. The real excitement from the MTBPS was the formal lowering of the Reserve Bank’s (SARB) inflation target from a range of 3-6% to a 3% target with a 1% tolerance band. The new inflation target will enable the SARB to bring interest rates down further over time. The structural shift was underscored by the credit rating upgrade by Standard & Poor’s as well as South Africa’s exit from the Financial Action Task Force grey list. In addition, the GNU is maturing, and it is increasingly likely that the coalition will hold for the foreseeable future.

Economic growth appears to be steadier than the previous year. The SARB in its quarterly bulletin revised its GDP forecast for 2025 slightly higher to 1.3% and sees growth nearing 2% over the forecast period. In Q3, year-on-year GDP growth improved to 2.1%, up from 0.6% in Q2. While quarter-on-quarter annualised GDP growth slowed to 0.5% from 0.9% in Q2, growth was broad based with nine out of ten sectors expanding on the production side. Favourable rainfall and better crop yields benefitted agricultural output, and mining production was boosted by higher commodity prices and improved logistics. Household expenditure slowed slightly but the wealth effect of higher equity market and property prices, lower inflation and lower interest rates, kept it on a steady path, making it the biggest contributor to Q3 GDP growth. Encouragingly, investment (real gross fixed capital formation) returned to growth in Q3, although its average level for the first three quarters was still 2.7% lower than in the same period 2024, and the recovery in Q3 largely reflected public sector investment with private sector investment showing a negligible increase. Nonetheless, the latest private sector credit extension data shows 7.8% year-on-year growth in November, much improved from 3.8% growth in December 2024.

Increased business and consumer confidence are needed to unlock private sector investment spending, identified by the Bureau of Economic Research as the key to unlocking a higher growth trajectory. Although investment remains largely absent, the SACCI (South African Chamber of Commerce and Industry) Business Confidence index reached a multi-year high of 132.3 in November, the highest level since July 2011. The forward-looking SARB Composite Leading Business Cycle indicator corroborated the improving outlook by maintaining the uptrend that began in mid-2023. The largest contributors were an increase in the export commodity price index and an improvement in the RMB/BER Business Confidence index, which increased to 44 in Q3, from 39 in Q2. Other RMB/BER indices improved across the board over the quarter, including Building Confidence from 35 to 43, Civil Construction confidence from 43 to 52, Consumer Confidence from -13 to -9 and Retail Confidence from 32 to 43.

The SARB cut the repo rate at its November policy meeting, its first since formalization of the new inflation target despite consumer price inflation rising slightly in October to 3.6% year-on-year from 3.4% the prior month. The uptick is mainly due to non-core items including meat, vegetables and fuel. Indeed, core CPI, which excludes food and energy due to their volatility, reduced in October from 3.2% to 3.1%. The repo interest rate was cut by 25 basis points to 6.75% in the context of an improved inflation outlook and the SARB’s Quarterly Projection Model continues to forecast gradual rate cuts as inflation subsides. Independent research firm Capital Economics forecasts a further 100 basis points of rate cuts by the end of 2026, albeit a lot lower than the consensus forecast.

Under the positive BER scenario, a combination of improved fiscal and monetary policy coordination, a strong push for reform, coupled with greater political and policy certainty, could drive the GDP growth rate from a base case of sub-2% over the next two to three years, to around 3% based on a virtuous cycle of investment and business confidence. The pace of structural reforms is gaining some urgency although the BLSA’s (Business Leadership South Africa) Reform Tracker, shows that only a third of the economic deliverables that it monitors are on track. It will take a significant step-up in the pace of reform implementation to convert the R1.8 trillion sitting on corporate balance sheets into investment. Indeed, the latest Absa manufacturing PMI (purchasing managers’ index) somewhat punctured the positive outlook after it dropped sharply into sub-50 contractionary territory in November to 42.0 from 49.0 in October and 50.8 in September. The economy-wide Standard Bank PMI also fell to 47.7 in December, marking a steady decline from 50.2 as recently as September.

There is greater confidence in the GNU’s durability, and the DA has the potential to gain support at the upcoming 2026 local government elections and the 2029 national election. Recent polling indicates significant advances in DA support at the expense of the ANC, MKP and EFF. The latest SRF (Social Research Foundation) poll conducted in December shows MKP support falling to 8% from 18% in June. ANC support was shown at 37% and the DA at 32%. Helen Zille has launched her candidacy for the Johannesburg mayoral position at the local government elections, with implications for reform progress in the key metro. However, the biggest longer-term risk relates to ANC succession. Deputy President Paul Mashatile remains the frontrunner to succeed President Ramaphosa, which in a worst-case scenario raises the potential for an ANC coalition with the EFF and MKP post the 2029 national election, with negative implications for structural reforms.

South Africa is currently in the sweet spot, benefitting from a cyclical recovery and structural reform progress. At the same time the global backdrop is pro- emerging market assets. Investor sentiment has picked up amid significant reform announcements, and although economic growth remains modest, the outlook is improving and in financial markets, it is not so much the level of activity but the direction of travel that drives the market’s rating. The JSE’s PE multiple (price: earnings) has steadily increased from its level of 14.2x at the end of 2024 to 16.3x at the end of 2025, closing in on its long-term average of 16.6x. While it would be unreasonable to expect the JSE to repeat the past year’s performance, 2026 is likely to generate solid returns, driven by healthy earnings growth in the mid-teens and continued rerating as the repo interest rate continues to decline, pulling down the RSA 10-year gilt yield with it. Easing structural constraints to growth combined with lower interest rates and continued foreign interest in emerging markets offer the necessary ingredients for a further re-rating in the JSE over the coming year.