Investing in 2025 after a year of local and global changes

After a year of local and global changes such as a new government in South Africa and the United States and ongoing global tensions in various parts of the world, investors have to think carefully about investing in 2025.

As South African financial markets balance the optimism generated by the formation of the government of national unity (GNU) with ongoing geopolitical uncertainty, investors find themselves at a pivotal juncture where careful navigation is required to manage risks and capitalise on emerging opportunities, Roger Eskinazi, managing partner at Tickmill, says.

“Positive local economic developments bolstered investor confidence, laying a strong foundation for 2025. This renewed confidence is illustrated by stronger asset prices and a recovering rand. The South African Reserve Bank (Sarb) also reported an improved financial stability outlook in its November 2024 Financial Stability Review (FSR), citing reduced load shedding, lower interest rates and enhanced domestic asset allocation.”

ALSO READ: Unused state properties to drive jobs and investment

SA still significantly underweighted for investing

However, he points out that despite these gains, foreign investor participation remains subdued, with South Africa still significantly underweighted among emerging markets.

“Net foreign flows showed outflows totalling R124 billion over the past year, but there has been a revival in interest from local investors seeking value in previously overlooked ‘SA Inc’ sectors such as banking, retail and consumer staples.”

Eskinazi says Boxer, the discount grocery chain owned by Pick n Pay, added to this interest when it recently debuted on the JSE in one of South Africa’s most significant initial public offerings (IPOs) of the year, raising R8.5 billion.

“The IPO was well-received, reflecting growing investor confidence in the consumer staples sector, which has proven resilient amid economic challenges. “Boxer’s successful IPO demonstrates the appeal of South African consumer-focused businesses, even in a volatile environment.

“This development highlights the potential for companies catering to essential needs to attract capital and drive market activity.”

ALSO READ: What to consider when deciding to invest locally or offshore

Regulatory reforms also reshaped investing in 2024

In addition, Eskinazi points out that regulatory reforms also shaped the investment landscape in 2024. “The introduction of the two-pot retirement system enabled South Africans to withdraw approximately R35 billion from retirement funds, sparking concerns over reduced long-term capital flows into local markets.

“Meanwhile, amendments to Regulation 28 of the Pension Funds Act, which increased offshore investment limits from 30% to 45%, prompted local investors to move more capital abroad.”

He says while the economic outlook undeniably improved over the year, significant risks persist. “The Sarb’s Residual Vulnerability Matrix highlights critical infrastructure failures, rising financial distress among households and small businesses and the prolonged implications of South Africa’s presence on the Financial Action Task Force’s grey list, which could increase compliance costs, limit access to global financial systems and deter foreign inflows.”

However, he says, structural reforms are beginning to bear fruit, with the Sarb emphasising operational resilience and implementing contingency plans to ensure continuity in payment systems during critical infrastructure failures.

ALSO READ: SA investors reel in local gains with legal offshore loophole

Global challenges to investing

Eskinazi says global challenges, including escalating geopolitical conflicts, are still a key consideration as they threaten to disrupt supply chains, exacerbate inflation and heighten market volatility. “On a domestic level, sovereign debt exposure also remains a concern, with government debt continuing to dominate high-quality liquid assets.”

However, he says promising investment opportunities are emerging in areas aligned with domestic recovery. “Infrastructure development, spurred by public investment initiatives, is expected to fuel growth in construction and ancillary sectors, while consumer-facing businesses, particularly in retail and banking, offer attractive valuations compared to global peers.”

Looking ahead to 2025, Eskinazi urges investors to take a strategic and balanced approach to navigating South Africa’s evolving market dynamics.

“The current rebound presents exciting opportunities, particularly in domestic-focused sectors and newly listed companies like Boxer. However, risks such as escalating global conflicts and remaining on the FATF grey list over the medium term should not be underestimated.”