In a note on asset allocation and strategy, Anchor Capital said the balance of risks has shifted increasingly in favour of SA equities. The domestic economy is improving from a low base, inflation remains contained, fiscal credibility has strengthened, and structural reforms continue to move in the right direction..
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Consensus expectations for domestic earnings remain relatively subdued despite a more supportive macro backdrop, improving business confidence, and the prospect of gradually strengthening economic activity over the next year, said Anchor Capital chief investment officers Nolan Wapenaar and Peter Armitage.
In a note on the asset and wealth management, and investment advisory firm’s third quarter strategies, they said geopolitical uncertainty remains elevated, but the broader macroeconomic backdrop has become more constructive, supported by lower energy prices, resilient global growth, improving domestic fiscal fundamentals, and supportive commodity prices, which all provide a favourable environment for risk assets over the medium term.
“Our conviction in SA equities strengthened during the second quarter of 2026, prompting us to move overweight local equities in our strategic asset allocation. We forecast a total return of about 14% over the next 12 months, supported by improving domestic fundamentals, attractive valuations, and potential for a less restrictive US interest-rate environment than is currently reflected in market pricing,” they said.
While both the FTSE/JSE Capped All Share Index and the MSCI South Africa Index declined by 2.4% in the second quarter of 2026, significantly underperforming the MSCI Emerging Markets (+24%) and the MSCI World (+14%) indices, the headline index returns obscured a more encouraging underlying picture, they said.
“The weakness was concentrated in a relatively small number of globally exposed companies rather than reflecting a deterioration in SA’s domestic investment outlook. By contrast, SA government bonds (and the Rand) remained resilient, and a bellwether for domestic equities, the FTSE/JSE Banks Index, advanced by 9.8%, reflecting continued confidence in the local macroeconomic backdrop,” said Wapenaar and Armitage.
Much of the weakness in the local equity market was driven by global rather than local factors and was concentrated in a handful of large index constituents.
Gold and platinum (PGM) producers came under pressure as higher US real yields weighed on precious metal prices. Also,Tencent, Naspers/Prosus’ single largest asset, fell by around 10% as global investors redirected capital towards Asian semiconductor beneficiaries of the AI investment cycle, including Taiwan Semiconductor Manufacturing Company, Samsung, and SK Hynix.
“Given the significant weighting of resources and the Prosus/Naspers complex on the JSE, these moves masked the relative strength seen across much of the domestic market,” they said.
“The resilience of the Rand and the strength of the local bond market suggested investors continue to recognise the progress being made domestically,” they said.
The market’s attention had remained focused on global risks through the second quarter. Escalating tensions in the Middle East pushed oil prices above $100/bbl, reigniting concerns around inflation and delaying global interest rate cut expectations. While these factors affected investor sentiment, they had surprisingly little impact on SA’s financial markets beyond the equity index itself, they said.
“SA fiscal outcomes have consistently surprised to the upside, government debt appears to be stabilising sooner than anticipated, and the country’s sovereign credit profile continues to improve. Electricity supply has become materially more reliable, private sector investment in energy infrastructure continues to accelerate, and reforms to improve logistics and transport networks are gaining traction,” said Wapenaar and Armitage.
“None of these developments is transformational for economic growth in isolation, but collectively they steadily improve the operating environment for SA businesses. In our view, the market has been quick to discount global risks while giving relatively little credit to structural improvements within the domestic economy,” they said.
Financial companies were well placed to benefit. Strong balance sheets, resilient credit performance, and improving economic confidence provide a foundation for earnings growth, while declining sovereign risk should continue to support valuations.
Also, a number of industrial businesses continued to demonstrate the ability to grow earnings despite a challenging operating environment.
“Looking ahead, we believe the balance of risks has shifted increasingly in favour of SA equities. The domestic economy is improving from a low base. Simultaneously, market expectations remain conservative, particularly for domestically focused cyclical businesses,” they said.
This was not to suggest that global risks have disappeared, they said.
Old Mutual Wealth Investment strategist Izak Odendaal said in a recent note the International Monetary Fund (IMF) expects that global growth will fall to 3% this year, slightly below the long-term average, before recovering next year to 3.4%. In the IMF forecast, headwinds from higher energy prices will be largely offset by the AI capex boom.
He said, however, that with AI now a common underlying theme in global markets, diversification was harder but not impossible.
“For example, a Bank of England report notes that AI-related companies now make up 50% of market capitalisation of US markets, but only low single digits for the UK market. The same is true for the JSE. Both these markets also trade on reasonable valuations, while local fixed income also offers attractive real yields,” said Odendaal.
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