While economists debated whether SA could escape its malaise, and social media was awash with emigration advice, the JSE quietly delivered one of the world’s best equity performances this year.

The top 40 is up 30% in rand terms and with the currency strengthening 10%, foreign investors are sitting on 40% returns. Only South Korea’s 42% gain beats that performance globally.

That creates an uncomfortable question for the army of pessimists: if SA is truly the basket case they describe, why are investors piling in?

JPMorgan and Goldman Sachs turned bullish on SA stocks in July, advising clients to expect continued outperformance. The JSE has recently been trading more than R30bn daily, 44% bigger volumes than a year ago. Foreigners account for a third of that and have turned net buyers of equities (slightly) and bonds. Domestic investors are also strongly behind the repricing of stocks.

Commodity boom fuels initial gains

Yes, the initial trigger was resource stocks benefiting from gold’s 41% rise and platinum’s 55% surge. AngloGold and Gold Fields have more than doubled in value, helping the resources index up 96%. (BHP and Anglo American are notable exceptions — they are essentially flat in the year to date.)

Precious metals miners are enjoying bumper profit, with AngloGold reporting that free cash flow more than doubled in the second quarter.

Still, attributing the entire rally to commodity prices misses the deeper story. More tellingly, the improvement comes despite miners failing to increase output significantly, a legacy of years of policy uncertainty deterring expansion investment.

There has been some help for metals volumes from improvements in Transnet’s ability to rail and ship the output, but production has not increased for many years. Imagine the performance if production capacity was able to keep pace with prices.

Structural factors support broader rally –

The attention, though, is swinging to other parts of the market for a second phase of the rally. The industrial index is up 18% and financials 5%, a performance that reflects structural changes, not just metal prices. Yet these gains are relatively modest. More cyclical sectors appear not to be pricing in the effective end of load-shedding.

With the return to a stable power supply it’s easy to forget the 270 hours of outages at November 2023’s peak  and the severe disruption as a result. Investment decisions frozen during that dark period are slowly restarting as confidence builds that power stabislity will endure.

Greylist removal and lower rates add momentum

Another structural support comes from SA’s likely removal from the Financial Action Task Force’s greylist next month, ending another friction cost.

Lower interest rates add momentum, with prime rates having fallen 1.25 percentage points to 10.5% in the past 14 months and further cuts expected (though perhaps some way off). Combined with structurally lower inflation expectations, these create conditions for a consumer upswing that benefits cyclical stocks such as retailers and banks.

Political stability underpins investor optimism

The government of national unity’s survival and successful budget passage (on the third attempt) while maintaining debt discipline have convinced investors that political stability will extend into the next election cycle with good fiscal management as a baseline.

There’s also a technical momentum building. SA comprises 3.3% of the MSCI Emerging Markets index today, but as recently as 2018 it was double that proportion.

The country’s outperformance increases its index weighting, forcing tracker funds to buy more SA stocks as they rebalance. That creates compounding effects as each index step upward increases foreign participation, adding buying momentum.

Investors are positioning for what consumer sentiment refuses to acknowledge: a recovery in performance driven by structural reforms, lower rates and moderate economic growth. The persistence of pessimism, acting as if we’re still in stage 6 load-shedding, creates an opportunity that sophisticated investors are exploiting. The sustainability of this rally depends on whether industrial and financial stocks can carry momentum as resources prices moderate. That requires the consumer recovery to take hold, and investors are betting it will.

Trade wars pose genuine threats, particularly to manufacturing and agriculture, though many resources exports remain exempt from US tariffs. The Trump administration’s occasional threats against Brics members create headline risk, but at the same time the legal basis for expanded tariffs faces growing US domestic challenges.

Market outperformance exposes sentiment gap

This performance gap reveals something profound about how narrative and reality diverge. While South Africans remained trapped in a crisis mindset, global capital assessed actual fundamentals: an improved electricity supply, a resources windfall, better logistics, lower rates, reasonable fiscal discipline and political stability.

The market’s message is uncomfortable for professional pessimists: structural improvements are working and the economy’s trajectory has shifted more than sentiment acknowledges. Resources may have triggered the rally, but its sustainability depends on recognising that the foundations for broader recovery are already in place.

The question isn’t whether SA can escape its problems; the market suggests it already has. The question is how long consumer sentiment will lag behind the reality that investors have already priced in.

• Dr Stuart Theobald is chair of research-led consultancy Krutham. This article first appeared in Business Day.