The rand and South African shares and bonds extended their rally on Thursday as investors cheered signs of fiscal discipline after the government’s medium-term budget policy statement.
The rand briefly broke below the key R17/US$ level for the first time since February 2023 to touch R16.95 — its strongest in more than two years. The JSE’s Top40 index rose 2.3%, while the yield on the 2035 government bond fell six basis points to 8.6%, its lowest since early 2021.
National treasury has for years asked investors for patience while it pushed through slow and sometimes unpopular fiscal consolidation and addressed rising debt in a weak growth economy, which now seems to be paying off. The rand has strengthened more than 11% year to date against a sliding dollar, outperforming the wider emerging market index which is up just over 6%.
Shaun Murison, a senior analyst at Rand Swiss, said the rand may strengthen further, adding: “We could see a move towards the R16.80/$ mark shortly.”
Local-currency bonds have returned 31% so far this year, nearly double the emerging market average of 17%, JPMorgan data showed, while international hard currency bonds have gained 14.7%, versus an emerging markets average of 12.5%.
Wednesday’s medium-term budget policy statement pledged a third consecutive primary surplus – a key signal that consolidation under finance minister Enoch Godongwana and director-general Duncan Pieterse is taking hold.
“Treasury not only met but exceeded already positive expectations,” said Nafez Zouk, emerging markets strategist at Aviva Investors, who remains constructive on South African debt. “Lower yields free up fiscal space and support capital spending, creating a virtuous circle for growth.”
Ratings upgrades next?
Portfolio managers have responded by raising their bets on South Africa’s longer-dated bonds in a sign of confidence on the longer-term outlook. Citi strategists led by Luis Costa recommended buying South Africa’s 2052 dollar-denominated bonds, flagging consolidation and the potential for a ratings upgrade.
Ninety One’s Malcolm Charles said the firm has been overweight long-dated local bonds for two quarters, citing lower inflation and credible fiscal plans.
Read: Godongwana: load shedding down, energy investments up as reforms take hold
Still, risks remain, as revenue collection must improve, large redemptions keep funding needs high, and global shocks or weaker commodity prices could test the rally. “The MTBPS leaves little room for error,” said Sisamkele Kobus, fixed-income analyst at Ninety One. “Execution of savings and reforms is critical to preserve credibility.” — Colleen Goko and Sfundo Parakozov, with Siyanda Mthethwa, (c) 2025 Reuters
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