The South African stock market has achieved its longest consecutive monthly gain since records began in 1995. Bank of America notes that a rare alignment of soaring commodity prices and a strengthening currency suggests the market retains potential for further advances.
The benchmark South African stock index reached a historic high on Monday, propelled by rising gold and silver prices following military strikes by the US and Israel on Iran. Although the index retreated from its peak later in the session, its performance for the day still outpaced the broader emerging markets index. John Morris, a South Africa strategist at Bank of America, stated that the local market is benefiting from an uncommon convergence of global and domestic positive factors, particularly high metal prices and market expectations for a weaker US dollar.
"We are in a sweet spot," John Morris said in an interview. "This combination doesn't happen often, and we still have room to run." He believes the commodity cycle will continue to support the market over the next 12 to 15 months. The South African Rand could also strengthen further, which would lower bond yields and provide a boost for banks and other domestic sectors.
The escalation of tensions in the Middle East did not alter his positive outlook for the South African market. He pointed out that precious metal prices remained robust on Monday, a factor that is more critically positive for the South African market.
The FTSE/JSE Africa All Share Index has climbed 44% over the past year, with metal and mining stocks posting the most significant gains. The index has recorded positive returns for 12 consecutive months, marking the longest such streak since Bloomberg began tracking the data in 1995. In February alone, the index rose 7%, its largest monthly gain in over two years and its best February performance since the global financial crisis.
John Morris attributed this historic rally to a rare synchronization of global and local favorable factors converging to provide support.
Strong commodity performance has been the core driver of this rally. Over the past year, gold prices have surged by 86%, while platinum has jumped by an even more substantial 146%, both providing solid underpinning for the South African equity market.
"This is the decade for resources, and US inflation remains high," John Morris commented. "It feels like we're back in the 70s." He believes the current commodity cycle has the foundation to persist for 12 to 15 months, which is sufficient to continue supporting the relevant sectors in South Africa.
Beyond commodities, the trajectory of the South African Rand has been another key factor supporting the market. The Rand has appreciated approximately 15% against the US dollar over the past year. John Morris views the Rand as still undervalued and anticipates further strengthening. This would lead to lower bond yields and prove beneficial for domestic industries such as banking.
He explained that rising commodity prices will drive the Rand stronger, subsequently boosting earnings for South African domestic companies. Financial and industrial stocks have the potential to deliver significant returns as they play catch-up with the mining sector. Furthermore, he considers South Africa's latest budget announcement as "further supporting the logic for investing in local assets."
John Morris also emphasized that this bull market is not without its limits. Although moderating inflation could provide room for the South African Reserve Bank to cut interest rates, thereby reinforcing a cyclical recovery, current economic growth remains modest, and reforms are progressing gradually.
"You are not going to get the kind of excess returns you had last year," he stated. "But the direction of the market is still up, albeit with volatility along the way." In his view, structural support for the South African equity market remains intact, and investors need to maintain an appropriate expectation for short-term pullbacks while capturing the overall upward trend.