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South African stocks need to beat rising earnings expectations to prolong their record-setting rally into 2025. Not all investors are convinced they can.
The main index is up over 7 percent in dollar terms since a business-friendly unity government was installed in early July, easily outpacing the 0,8 percent drop for emerging-market peers.
There’s been other good news too: eight months without any disruptive rolling power blackouts, while inflation has slipped below the central bank’s target range, supporting the case for easing interest rates.
But, for the market to build on a year when it has set 14 record highs, investors are looking to companies to deliver on projections for increased profits.
Analyst estimates of year-ahead earnings for FTSE/JSE Africa All Share Index members have climbed 10 percent in 2024, compared with about 6 percent for peers in MSCI’s emerging-market benchmark.
“If these share prices are to be maintained, the next leg that has to come is earnings growth and I think we’re worried about the earnings growth disappointing,” said Jithen Pillay, a Cape Town-based portfolio manager at Allan Gray.
“We haven’t as yet seen a structural move in those factors that would enable those companies to grow their earnings above inflation.”
Shares in domestically focused industrial companies have re-rated from deeply discounted levels since the election, said Nick Balkin, Foord Asset Management’s chief investment officer for South Africa.
“Valuations are not as low, so now it will be about earnings growth and the economic growth for South Africa picking up,” said Pillay. -Bloomberg
Online Reporter