The precious metals rally has been great for pockets of the SA’s equity markets, but this could yet convert into a better performance for the local economy and the rest of the bourse.
Gold started rallying strongly in 2024 and is up 77% from its early 2024 levels. Platinum group metals (PGMs) have also started climbing, up 30%-56% this year, depending on the metal.
Consequently, equity markets have had a cracker 2025 so far. The JSE all share index is up 23% year to date. The local bourse is beating the S&P 500, up 3% in rand terms, and has performed better than the aggregate MSCI world index, which is up only 5.5% year to date.
Though market performance has so far been outstanding, returns are concentrated in commodity names, and specifically to companies that export precious metals, including gold and platinum. The precious metals subindex is up 135% and the industrial metals subindex a relatively miserable 3%. This return profile makes sense in a world where PGM prices are up 38% and gold 45% in rand. By contrast, industrial commodity prices are down 2% in rand terms.
However, SA Inc listed companies that rely on robust local economic activity have gone nowhere this year. The SA Inc index has lost 4%, a number that would have been far worse without the 43% in returns delivered by the telecom companies, the largest of which, MTN and Vodacom, have large businesses outside SA. Banks have done nothing and retailers would have lost you 24% had you invested at the beginning of the year.
The rally in equities masks the real story, which is of a weak local economy, as reflected in the GDP numbers released this week. Stats SA reported that SA’s GDP rose by a still miserable 0.8% in the second quarter. This figure was an improvement compared with the first quarter, but I struggle to take any number below 1% growth seriously.
The economy is only 3% larger than it was in the second quarter of 2019, before the Covid-19 crisis, in inflation adjusted terms, and it grew a paltry 0.6% compared with the same time last year. We are still in a low-growth trap.
Yet, there is a good story here. The precious metals rally should leak into the broader economy, directly via activities downstream of the mines and via the positive effect of higher minerals prices on the macro economy.
Higher precious metal prices bolster the terms of trade, which explains much of the rand’s resilience this year. Rand strength keeps inflation in check and creates room for monetary policy easing. If precious metal prices rise further, more room will open for the Reserve Bank to cut rates, providing further stimulus for growth.
Miners also pay taxes, and the windfall from better profits will accrue to the fiscus via higher tax receipts. This creates capacity for the Treasury to improve the government’s debt trajectory and lower its cost of debt. This is important for the government to the extent that it contains debt service costs, the fastest-growing line item in expenditure. Lower government borrowing rates will filter into the rest of the economy, which is good for investment across the board.
SA’s economy always benefits from high commodity prices and this time should be no different. In 2021 and 2022 higher commodity prices helped GDP recover to pre-Covid-19 levels, but sentiment collapsed into the 2023 power shortages. The rise in mineral prices, though concentrated in just precious metals, will provide a boost to growth and something of a cushion in the context of tariff shocks to global demand.
At some point expectations of better times will filter into the rest of the equity complex and SA assets in general. We might be closer than we think to a better growth experience.
• Lijane is global markets strategist at Standard Bank CIB.
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