South African assets have posted strong gains this year, with the rand reaching its best level in more than two years, government bonds drawing solid demand and the JSE rallying across key sectors. The gains have come as domestic economic fundamentals improve, commodity prices remain strong and global monetary policy remains supportive. Bonds have performed particularly well, with the yield on 10-year blended government paper dropping from its peak of 11.11% in April to 8.46% on Thursday.
The improvement signifies lower borrowing costs generally for a highly indebted government. The rand reached a best level of R16.89/$ on Thursday, the strongest since March 2023, “supported by a slightly dovish US Federal Reserve, year-end carry flows, and increased market liquidity,” said James Turp, head of fixed income investment strategy at Sanlam Investments. The Fed delivered a split decision to cut rates on Wednesday evening — the third interest rate cut this year, with predictions of one more in the pipeline.
“Fed chair Jerome Powell’s comments on a cooling US labour market were interpreted as dovish, supporting bond yields and the rand,” Turp said, adding that carry trade currencies typically strengthen over the year-end, as is the case with bonds. A key driver of South Africa’s market gains this year has been the performance of precious metals. Gold and platinum have rallied strongly, lifting mining stocks and supporting broader equity gains.
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“The biggest driver has actually been the attractiveness of precious metals,” said Sanlam Investments portfolio manager Roy Motuni. Read:DANI FREIDUS: Startling S&P vs JSE comparison shows data can be used to boost narratives The metals rally has coincided with a broader return of investor confidence in the country that has boosted corporate earnings expectations, while the stronger rand and falling bond yields have encouraged flows into the equity and debt markets. Motuni said the domestic improvements, combined with policy stability, have helped sustain market momentum. Motuni attributes the fall in bond yields to positive domestic developments, including the removal of South Africa from the Financial Action Task Force greylist, improved credit ratings, and the credibility of the medium-term budget policy statement.
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