The local market has started the year with a confidence that feels almost unfamiliar. The rand has strengthened, inflation has been kept at bay, and the bond market has continued to behave. Meanwhile, the JSE has done what it does best when sentiment turns. It moves sharply, quickly, and with very little warning for anyone still sitting on the sidelines waiting for the “perfect entry point.” After a strong 2025 (especially for resources), the market has carried momentum into the new year, supported by a combination of improved macroeconomic conditions and continued strength in select sectors.

As at 16 February 2026, the JSE All Share Index (ALSI) is up 4.2% year-to-date, while the FINI15 has delivered 6.3%. The RESI10, as expected, has been more volatile, but remains one of the key drivers of overall market direction, delivering 13.1% YTD. This split is important as it highlights what we’ve been saying for months. South Africa is not a market where all boats rise and fall with the tide. We saw this play out clearly in the past few weeks. A sharp selloff in the resource space reminded investors just how quickly profits can be taken when positions become crowded. Yet the recovery that followed was equally telling. Market participants were quick to re-enter, suggesting the underlying appetite for South African risk has strengthened materially.

The South African Reserve Bank’s first meeting of the year was always going to be important. Not because investors expected dramatic action, but because they wanted confirmation that the inflation battle is truly being won. For now, the data continues to support that view. The SARB kept rates unchanged, leaving the repo rate at 6.75% and prime at 10.25%, with a split vote showing potential for further easing. This cautious approach is exactly what we’ve come to expect from Governor Kganyago and the MPC. They are disciplined, methodical, and reluctant to cut too early. The key point here is that inflation is under control.

The December CPI print came in at 3.6%, slightly higher than November, but the annual average inflation rate for 2025 landed at 3.2% (i.e., the lowest in more than two decades). Standard Bank expects inflation to remain benign going forward, forecasting CPI to average 3.4% in 2026, 3.3% in 2027, and 3.2% in 2028. As far as inflation outlooks go by South African standards, this is exactly what our economy needs as it sets the tone for additional rate cuts. Furthermore, they forecast the repo rate ending 2026 at 6%. To many, that may just look like a number coming down a little, but it has real-world implications. Lower rates reduce funding costs, support credit growth, and relieve pressure on households. But more importantly, they improve confidence, which is often the most powerful ingredient in an economy like South Africa’s.

Last week’s State of the Nation Address did not deliver any major surprises. For many, that alone is a positive. SONA confirmed continuity in the government’s policy reform priorities, aligning with expectations. Energy reform remains central, infrastructure investment remains a priority, and the language around public-private partnerships continues to strengthen. The market interpreted the SONA as “reform is still on the agenda”.

However, South African investors have learnt to not confuse good intentions with guaranteed outcomes. It was noted by Standard Bank that any revenue overrun beyond what is needed to avoid the tax hikes pencilled in for 2026 may still be used to increase spending rather than reduce debt. Yes, our fiscal position is improving, but the political incentive to spend remains high. If fiscal discipline slips, the bond market could become less forgiving. If that happens, expect to see yields rise and prices drop. For the time being, the reform narrative remains intact, and the market is choosing to focus on direction rather than perfection.

Although uninspiring on paper, South Africa’s GDP growth outlook is improving in trend. GDP growth is forecasted at 1.4% in 2026, 1.8% in 2027, and 2.1% in 2028. These numbers won’t solve unemployment, nor will they erase structural constraints. They do, however, represent progress, and in a market priced for stagnation progress can be enough to drive meaningful returns. The bigger question is “What will unlock growth beyond the 2% ceiling?”. The answer is simple – structural reform and capital investment. If logistics improve, energy supply stabilises, and private investment accelerates, South Africa’s growth potential will rise significantly. That brings us to the next point.

The most exciting part of Standard Bank’s macro forecast is not CPI or GDP. It is the improvement in Gross Fixed Capital Formation (GFCF). In plain English, the country investing in itself again. Think roads, ports, rail, electricity, and water infrastructure. Standard Bank forecasts GFCF growing 2.5% in 2026, accelerating to 4.2% in 2027, and reaching 5.4% in 2028. This follows a contraction of -2.3% in the most recent year, making the turnaround even more meaningful. These kinds of statistics rarely make headlines but often define multi-year investment cycles. When GFCF rises, it means South Africa is building. When the country begins building, one sector tends to benefit disproportionately.

Construction companies have been through a decade of pain. Weak municipal finances, inconsistent public spending, and private sector caution left the sector starved of meaningful project flow. Many construction companies survived by restructuring rather than growing. Construction is cyclical, and when the cycle turns it tends to turn hard. If GFCF growth accelerates as forecasted, the beneficiaries will not only be the obvious infrastructure suppliers, but also the listed construction players with strong balance sheets, credible order books, and proven execution capability.

This is precisely why we have recently increased exposure to construction-related tickers in our local growth and balanced portfolios. The macro conditions are becoming supportive: inflation is low, interest rates are likely to decline, business confidence indicators are improving, and capital investment is expected to rise. Construction is not a “safe” bet. It is a direct and leveraged bet on South Africa doing what it must do to grow. Importantly, the market does not need perfect delivery to re-rate the sector. All it needs is improvement, consistency, and momentum.

One of the clearest drivers of improving sentiment has been the rand. A stronger rand is a tailwind for inflation and interest rates, but it also influences portfolio construction. Offshore returns look less attractive in rand terms when the currency strengthens, while domestic opportunities become more compelling. This is partially why we have also reduced some offshore exposure and redirected capital toward higher conviction local opportunities.

South Africa is not suddenly risk-free, but the risk-reward balance has improved. Political and execution risk is real, and external shocks can still disrupt the recovery. However, the macro backdrop is shifting in the right direction and while government policy remains imperfect, it continues leaning toward reform and infrastructure investment.

This is not a story of South Africa being fixed but rather improving. Slowly, unevenly, but meaningfully. It is an environment where domestic cyclicals can surprise, where construction has genuine upside, and where positioning early in the building cycle may prove far more rewarding than waiting for the headlines to catch up.