South African markets basked in good news this week, with traders reacting positively to Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement (MTBPS) on Wednesday. The JSE All-Share Index continued its hot run, climbing 3.3% for the week at the time of writing. The rand, meanwhile, briefly strengthened to below R17 to the dollar, a level it has not breached in around two years. The rand was trading at R17.11/$ at the time of writing.
The MTBPS brought some welcome developments, including confirmation that National Treasury has endorsed a new inflation target of 3%; a forecast that the main budget primary surplus will grow over the 2026 medium-term expenditure framework period; and better-than-expected tax revenue collection for the first six months of the current tax year.
These announcements, while not unexpected, added to a range of tailwinds that have boosted South African markets over the course of the year. The JSE All-Share Index, up around 35% year-to-date in rand and 53% in US dollars, is one of the top-performing markets in the world. The rand, which has appreciated 9.2% versus the US dollar year-to-date, has outperformed emerging market peers in the context of a weaker dollar.
The situation is a remarkable turnaround, given the middling performance of the JSE and the rand in the post-pandemic years. Indeed, the performance of the rand and South African equities was relatively negative in the early months of the year, when South Africa’s Government of National Unity (GNU) was battling to pass a budget, and traders and investors alike were concerned about the possible impact of US tariffs on the economy, leading to the rand weakening to an intra-day low of R19.92/$ in April.
As per a Wednesday mailer from our currency research partner, Advantage FX Solutions, several other factors have contributed to the recent performance of the rand and the JSE:
- GDP forecasts have been revised upwards in the second half of the year off the back of increased economic activity and buoyant consumer spending.
- South Africa’s consumer inflation rate has averaged just 3.1% over the past year.
- There are signs that government expenditure is under tighter control.
- South Africa has exited the Financial Action Task Force (FATF) grey list after 33 months, which should make it easier to attract foreign investment.
- Foreigners are buying back into South African government bonds with combined inflows of $4.45 billion in August and September.
- Some commentators were optimistic that S&P was set to upgrade South Africa’s sovereign credit rating today.
- South Africa’s exports to the US year-to-date have held up well, despite US President Donald Trump’s imposition of new tariffs.
- The country has benefited from a lower oil price as well as a higher gold and platinum price.
- Revaluation of the Gold and Foreign Exchange Contingency Reserve Account balance could lead to additional transfers from the Reserve Bank to the National Treasury.
To that list, we might add that domestically oriented shares outperformed on the JSE in October while resources declined by 5.4%. It remains clear that the exceptional performance of the JSE does not reflect the fundamentals of the local economy. However, the rotation from precious metals to sectors such as financial services and real estate in October helped to keep the rally going.
As we have noted in earlier market updates and News Flashes, the current performance of the rand is primarily driven by a movement in the dollar, followed by the direction of emerging market currencies in general, and then by South African-specific factors. This year, the rand has experienced the sweet spot of positive South African-specific drivers noted above.
The JSE and the fiscus are also beneficiaries of this year’s precious metals boom, similar to cycles that boosted local markets in the early 2000s and after the sell-off that ended in January 2016. The upswing in global commodity prices has significantly increased South Africa’s export earnings, balance sheet health, and tax revenues. The country remains vulnerable should this come to an abrupt end, as it did in 2008 and 2015, which led to rand weakness of 48% and 63%, respectively.
Given that the Advantage FX Solutions currency decoder indicates that the rand would be fairly valued at around R17.90/$ at current dollar levels, some clients may see the current rand strength as an opportunity to increase offshore exposure. While we celebrate South Africa’s current run of good fortune, we, like many of our clients, still believe that international markets offer a more diverse and sustainable set of growth opportunities than those available at home.
“The rand strengthened sharply after the MTBPS as investors viewed it as a credible and constructive budget. The endorsement of a 3% inflation target, a modest revenue overrun, and clear intent to narrow the deficit below 3% of GDP reinforced policy discipline and improved sentiment toward South Africa’s fiscal outlook.”
– Vishal Rama, a quantitative analyst at Prescient Investment Management
“It has been a resounding positive reaction from most South African assets in response to the budget. For the currency, I would say the main impact is the certainty around the inflation target. The alignment between fiscal and monetary policy with regard to the target will allow inflation expectations to adjust lower to 3% more quickly, with less of a sacrifice ratio impact on growth from the change in the target. This is a very positive step for the economy, and the currency has reacted accordingly.”
– Adam Furlan, a portfolio manager at Ninety One
Global News
- The big news on the global front was that the US House passed a spending bill yesterday, which Trump later signed, officially ending the 43-day shutdown, the longest federal government shutdown in US history. The legislation, passed by a 222 to 209 vote, restores pay to hundreds of thousands of federal workers, resumes food-aid programmes, and re-opens key services, while extending government funding through 30 January. Economists warn that the cost of the pause, which included disrupted economic data, delayed travel, and lost GDP, may have lasting impacts despite the resolution. The Congressional Budget Office estimated the shutdown cut GDP growth by 1.5 percentage points this quarter, with a partial recovery expected early next year.
- White House Press Secretary Karoline Leavitt said on Wednesday that the October jobs and consumer price index reports are unlikely to be released due to the government shutdown. The Bureau of Labor Statistics (BLS) halted data production, leaving policymakers without key economic indicators. Economists warned that some figures, including CPI and unemployment, may be skipped entirely. The BLS hasn’t updated its release schedule and may merge two months of data to recover.
- US companies cut an average of 11,250 jobs per week in the four weeks to 25 October, ADP Research said on Tuesday, signalling a slowdown in hiring. ADP’s monthly report showed private-sector payrolls rose 42,000 in October after two months of decline. The University of Michigan found 71% of respondents expect unemployment to rise in the year ahead, while Goldman Sachs estimates payrolls fell 50,000 in October, warning of growing labour market risks. An estimated 24% of US households are living paycheck to paycheck so far in 2025, according to a Bank of America Institute analysis released this week.
- Wall Street rallied sharply on Monday, with the S&P 500 jumping about 1.5%, and tech megacaps posted their biggest advance since May as investors cheered progress toward ending the US government shutdown. Strong corporate results bolstered the optimism, and companies in the S&P 500 that have reported third-quarter earnings saw profits rise by 14.6%, effectively doubling analyst expectations. Nonetheless, traders remain cautious, mindful that the lofty tech valuations still cloud the outlook.
- Eighty percent of economists polled by Reuters expect the Fed to cut its key interest rate by 25bps next month to support a weakening labour market, up slightly from last month’s survey. This is despite divisions within the Federal Open Market Committee, limited data during the government shutdown, and the fact that the Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, has stayed above 2% for over four years, with the poll showing it would average above 2% through to 2027.
- Meanwhile, US consumer durables and personal goods inflation slowed in October for the first time in three months, as retailers increased discounts, OpenBrand data showed on Monday. Prices for big-ticket and personal-care items rose 0.22% from September’s 0.48%, with discounts near their highest since July 2024. Prices fell in appliances and personal goods, while only communications devices saw growth. PriceStats data also showed easing inflation, except in household equipment, furniture, and electronics.
- Trump on Tuesday expressed support for extending home-loan terms to 50 years, saying borrowers would “pay less per month … over a longer period” and thus it “would be no big deal”. While aiming to ease pressures on housing affordability, the proposal has drawn sharp criticism from economists and housing experts, who warn the move would significantly slow equity accumulation, increase total interest paid, and do little to address the core supply shortage underpinning the housing crisis.
- US import volumes are set to slow through the year-end holidays and into 2026, as tariff uncertainty and a cloudy consumer outlook weigh on cargo owners, Descartes Systems Group data showed on Monday. Container imports fell 0.1% in October from September, marking the second October decline in a decade, and October volumes were 7.5% below last year. So far this year, imports are just 0.9% higher than in 2024, while forecasts for November and December point to double-digit declines, reflecting ongoing supply chain and geopolitical uncertainties.
- European businesses expect a much sharper impact from US tariffs and rising trade tensions in 2026, after front-loading orders helped limit their effect this year, according to a new BusinessEurope survey. The data shows trade frictions are likely to shave only 0.03 percentage points off 2025 GDP across several European economies, but the drag could deepen to 0.5–0.6 points in 2026, with the euro zone most affected. Although tensions eased somewhat in July, firms remain uneasy about policy unpredictability and the medium-term risks to growth, underscoring lingering uncertainty heading into next year.
- SoftBank Group sold its entire $5.83 billion stake in Nvidia to fund new AI investments, it said on Tuesday. Founder Masayoshi Son is freeing up capital for projects including Stargate data centres with OpenAI and Oracle, and US robot manufacturing sites. The sale comes amid questions over whether tech giants’ planned $1 trillion in AI spending will deliver returns. Although SoftBank’s shares rose 7.2% on Tuesday, with Nvidia 3.3% down, SoftBank stock slid 10% on Wednesday to a one-month low.
- Cisco Systems shares rose about 8% in late trading on Wednesday after the company raised its 2026 sales and earnings forecasts, signalling gains from growing AI demand. The networking giant now expects up to $61 billion in revenue for the fiscal year ending July 2026, about $1 billion higher than its previous outlook. Earnings per share are above Bloomberg expectations. CEO Chuck Robbins said demand reflects the need for secure networking “as customers move quickly to unlock the potential of AI”. Cisco shares are up 25% this year.
- Anthropic said on Wednesday it will spend $50 billion to build custom AI data centres across several US states, including Texas and New York, in partnership with UK-based cloud platform Fluidstack. The sites will begin operating in 2026 and mark Anthropic’s first direct data centre build-out, moving beyond cloud partners Amazon and Google. The company said the projects will create 3,200 jobs and support the Trump administration’s goals of strengthening the US AI infrastructure and leadership.
- Shares in Novo Nordisk rose 2.6% on Monday after the Danish drugmaker lost a $10 billion bidding war for US biotech Metsera to Pfizer last Friday. Investors had seen Novo’s offer as too complex, and Norway’s sovereign wealth fund raised governance concerns by saying it would abstain in a shareholder vote on a new board. Metsera cited US antitrust issues in rejecting Novo’s bid, which it had initially considered superior. Novo shares are still near their lowest since mid-2021.
- Luxury fashion houses such as LVMH, Kering, Richemont, and Moncler are under pressure to convert recent stock-market gains and signs of recovery into meaningful sales growth in the forthcoming holiday season, which can account for up to 30% of annual revenue. While China has shown some improvement and creative product launches are generating buzz, significant risks remain as consumer demand in China is still muted, and US luxury spending is fragile. The industry’s broader question is whether this is a genuine turnaround or merely a momentary uptick ahead of a deeper headwind
- As at Thursday’s close the S&P 500 was 0.13% up for the week.
Local News
- South Africa has officially lowered its inflation target to 3%, with a ±1 percentage-point tolerance band, replacing the previous 3–6% range that had been in place for 25 years. The move, announced by Finance Minister Enoch Godongwana on Wednesday during MTBPS, is intended to anchor inflation expectations, lower interest rates, and boost long-term growth, but comes with near-term trade-offs, including smaller nominal GDP growth and revenue, highlighting the difficult balance between tighter monetary discipline and fiscal sustainability. Simultaneously, National Treasury projects public debt will peak at about 77.9% of GDP in 2025/26 before stabilising, a slightly higher level than earlier estimates.
- The decision to lower its official inflation target to 3% has raised expectations of a sovereign credit-rating upgrade by S&P Global Ratings and a possible interest-rate cut by the South African Reserve Bank (SARB). The narrower target signals stronger alignment between fiscal and monetary authorities and is viewed by analysts as paving the way for lower inflation expectations, improved investor confidence, and lower borrowing costs.
- The rand strengthened 0.7% to the dollar on Wednesday and continued its gains yesterday to trade below R17/$ for the first time since February 2023. The JSE All Share Index breached the 115,000-point mark for the first time in the bourse’s 138-year history.
- Deputy President Paul Mashatile told MPs at a Bosberaad on Tuesday that the GNU remains coherent despite policy disagreements among its 10 coalition partners. Responding to questions from EFF leader Julius Malema, he said tensions during the 2025 budget process reflected ideological differences but that disputes were managed. Mashatile said the coalition was united behind the 2024 statement of intent and focused on inclusive growth and investment promotion.
- Godongwana on Wednesday dismissed Trump’s claims of a genocide against white Afrikaners as “false” and politically driven. Trump has boycotted the upcoming G20 Summit in Johannesburg and announced that no US officials will attend, citing what he calls “human rights abuses”. Godongwana emphasised that South Africa’s land-restoration policies are designed to address historical injustices and are not race-based, warning that sanctions pursued on unfounded allegations undermine the country’s global credibility. The summit will also see reduced participation from world leaders, with China’s Xi Jinping sending Premier Li Qiang in his place. Argentina’s President Javier Milei is also not attending in person, while President Vladimir Putin is sending a senior official as he faces an international arrest warrant, reducing the number of sitting heads of state expected to attend.
- Godongwana cautioned against the health department’s proposal to phase out medical scheme tax credits to help fund National Health Insurance, saying it could hurt the middle class. Speaking before the MTBPS on Wednesday, he said the move would target the same taxpayers already bearing the burden.
- President Cyril Ramaphosa yesterday committed to a crackdown on “construction mafias” that have disrupted over 180 infrastructure projects worth R63 billion since 2019, warning that the state will not negotiate with extortionists, cable thieves, or vandals. He reiterated government’s medium-term plan to invest R1 trillion in infrastructure, describing it as a strategic shift from consumption to investment and emphasising that infrastructure growth is central to job creation, economic competitiveness, and improving the quality of life.
- The National Employers’ Association of South Africa has criticised the draft Business Licensing Bill announced on Monday, arguing that provisions allowing municipalities to grant preferential licences to businesses owned by historically disadvantaged groups amount to “BEE in disguise” and could undermine job creation. According to the group, implementing such targeted licensing could cement exclusion and distortion within the free market rather than bolster transformation, particularly as it may impose additional burdens on small businesses and municipal budgets.
- The unemployment rate fell for the first time this year in the third quarter, dropping to 31.9% from 33.2% in the prior quarter, Statistics South Africa data showed on Tuesday. Job gains came in construction, community, and trade sectors, marking the lowest unemployment since late 2024. The agency has put the number of people employed in the informal economy at four million after definitions of formal and informal employment underwent “significant revisions” for the third-quarter jobless rate. The economy faces steep US export tariffs, falling investment, and limited revenue options, with the central bank warning that up to 40,000 jobs could be at risk next year.
- SARB bought a 50% stake in automated transaction processing company PayInc (formerly BankServAfrica), it said on Monday. This creates a national payments utility jointly owned with commercial banks. This moves the central bank closer to modernising the payments system, aiming to make it more secure, efficient, inclusive, and digital. Capitec and Investec also took direct stakes, while Absa, FirstRand, Nedbank, and Standard Bank retain minority holdings.
- The JSE and the Competition Commission will face off in court next year over allegations that Africa’s largest bourse breached antitrust law by limiting trading volumes for smaller rival A2X to protect its market dominance, the Commission said on Monday. The case before the Competition Tribunal, after a three-year investigation, will be the first major test for incoming JSE CEO Valdene Reddy, who takes charge in March.
- The South African Revenue Service’s (SARS’s) R5.3 billion claim against Sasfin will now go to trial, testing the tax agency’s efforts to tackle networks that erode the fiscus. SARS alleges Sasfin enabled illicit financial flows, mainly through tobacco producer Gold Leaf. Last week, the North Gauteng High Court allowed the case to proceed but limited SARS’ reach, ruling that imposing liability on banks for customers’ conduct could destabilise the sector and raise costs.
- The Information Regulator of South Africa is escalating its crackdown on major global tech firms after Google and Meta both refused to hand over records, arguing that the country’s Promotion of Access to Information Act does not apply to them despite their business operations in South Africa. The regulator is seeking legal clarity on its jurisdiction over offshore-registered companies conducting local business and has also reached a settlement with WhatsApp for allegedly coercing users into giving consent and failing to adequately disclose data-processing practices under the Protection of Personal Information Act.
- Google and YouTube have agreed to a combined R688 million media support package to fund national, community, and vernacular media in South Africa, the Competition Commission said yesterday. The move follows the Competition Commission’s Media and Digital Platforms Market Inquiry final report, which found that the platforms reproduce and summarise South African news without paying local publishers. The two-year inquiry also found that some online operators may have impeded fair competition.
- As at the time of writing, the rand was 1.15% stronger against the dollar, and the ALSI was 3.3% up for the week.
Sources: Dynasty, Bloomberg, BusinessDay, CNN, ITWeb, Business Report, WSJ, Reuters, etc.
