South African assets have rallied in recent months, yet the head of the country’s biggest bank still sees a cautious approach among many foreign investors who are waiting for the continent’s most industrialized economy to deliver on promised reforms.

The formation of a government of national unity, led by President Cyril Ramaphosa after May elections, sparked renewed confidence in local markets as the coalition includes parties considered business-friendly such as the Democratic Alliance.

The rand has turned its fortunes around to become one of the biggest gainers against the dollar among emerging currencies this year, and both local and hard-currency bonds have outperformed peers from developing economies.

Still, many international investors remain wary, Sim Tshabalala, CEO of Standard Bank Group, said at Bloomberg’s Future of Finance event on Wednesday.

“People burnt their fingers and they’re waiting to see greater economic activity,” he said, referring to the euphoria that followed Ramaphosa’s rise to power in 2018. Back then, markets rallied on expectations of economic reforms, but progress has been slow, leaving investors cautious about re-entering too soon.

“If this is sustained, the execution of the structural reforms, and of course, whether or not the GNU will be durable” remains the key question, Tshabalala said.

Foreign investors have been wary of South Africa following a slew of corruption scandals, an energy crisis linked to the debt-ridden Eskom Holdings utility and a meltdown at Transnet SOC, the state-run rail and ports operator, according to money managers at Loomis.

Positive mood

Unemployment and high public debt also remain economic challenges. Last year was the eighth in a row that foreign investors dumped South African equities — a record-long streak — selling stocks worth $8.3-billion. That dynamic continues in 2024 with net selling of US$5.5-billion on the year-to-date basis, according to data reported by exchange operator JSE.

Memories of the last wave of optimism from 2018 still resonate among investors who are concerned about risks of another market correction if the reform momentum falters or the coalition collapses.

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“The level of confidence this time is greater than any other time other than in 1994,” Tshabalala said, but he warned that the positive mood will only last if the government can deliver the needed structural reforms as well as investor-friendly policies supporting economic activity. — Mpho Hlakudi, (c) 2024 Bloomberg LP