SA’s economy is expected to get a boost from stronger consumer spending in 2025 with groups such as Mr Price, The Foschini Group (TFG) and Capitec Bank poised to benefit the most, according to investment experts at asset management firm Ninety One.
Rising disposable incomes, lower interest rates and better job prospects are creating a favourable environment for retail and banking stocks, said the asset manager.
Ninety One believes that after two years of stock market gains driven by improved sentiment, the next phase of growth will depend on actual earnings increases.
Head of the SA equity and multi-asset division Hannes van den Berg, and assistant portfolio manager at Ninety One Achumile Mashalaba, said the economy was becoming more supportive of consumer spending, presenting opportunities for businesses that can translate this into higher revenues and profits.
“The SA Reserve Bank has reduced local interest rates three times since September last year. Our expectation is for further rate cuts — a minimum of 25 basis points — in the coming months, making borrowing even cheaper for individuals and businesses.”
Lower borrowing costs mean households can spend more instead of using their income to pay off debt. NinetyOne said wage growth is set to outpace inflation for the first time in years, with inflation projected to stabilise between 4% and 5% in 2025, down from a peak of 7.8% in 2022.
SA’s job market has recovered from pandemic losses, growing from 14.5-million jobs in 2021 to 17.1-million today, surpassing pre-Covid-19 levels, according to the asset manager.
This increase in stable incomes is driving higher household spending. Government-support measures, such as the social relief of distress grant, tax rebates, and energy-related incentives, are also helping to ease financial pressure on consumers, Ninety One said.
The asset manager said Mr Price was set to gain as increased consumer liquidity boosted its cash sales model. On the other hand, TFG, with its extensive store network and strong e-commerce growth, was well positioned to capitalise on rising retail demand, supported by its credit business.
“Capitec Bank is particularly well-positioned to leverage increased credit availability and consumer confidence. Expected interest rate cuts in 2025 will improve loan affordability, driving higher demand for personal loans, credit cards, and retail financing products,” Ninety One said.
“Capitec Bank’s aggressive customer acquisition strategy supports growth in both its transactional banking and credit segments. Additionally, Capitec Bank’s expansion in digital banking and value-added services will enhance its non-interest income,” it said.
Despite a strong market rally in 2024, SA stocks remain attractively priced, according to Ninety One. Banks and discretionary retailers are still trading more than 10% below their 15-year average price-to-earnings (PE) ratios, meaning there could be further upside if companies deliver on earnings growth.
Ninety One maintains investors are now focusing on companies’ financial performance rather than market optimism alone. This makes 2025 a crucial year for businesses to prove their strength through real revenue and profit growth.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.