By: Thambo Mthwalo, Advisory Partner and Senior Equity Analyst at Citadel

Five reasons why South Africa (SA) is still an attractive investment opportunity as part of a diversified and risk-adjusted investment portfolio.

Despite persistent structural challenges and headline economic data, plenty of opportunities still exist for those who wish to invest in SA, says Thambo Mthwalo, Advisory Partner and Senior Equity Analyst at Citadel. “Negative investor sentiment towards SA does exist but it is also apparent that investors recognise the country’s potential. So, there is still some goodwill toward South Africa as an investment option,” says Mthwalo, who shares five reasons why SA should still be included in a diversified investment portfolio.

MACROECONOMIC CONDITIONS SHOW RESILIENCE DESPITE CHALLENGES

SA’s macroeconomic landscape impacts the country’s attractiveness as an investment destination. While economic indicators, such as labour statistics, economic activity, and foreign direct investment, remain under pressure, there have been recent signs of improvement. “The rate of change in macroeconomic conditions is interesting - we have seen an uptick in consumer and business confidence from a low base, aided by lower inflation, falling interest rates, and somewhat stable power supply, all of which enhance SA’s investment appeal,” highlights Mthwalo.

STRUCTURAL CHALLENGES ARE SHOWING SIGNS OF IMPROVEMENT

Investor sentiment towards SA has been predominantly negative in recent years, largely due to ongoing energy constraints, infrastructure backlogs, and policy uncertainty. However, Mthwalo notes that SA holds significant potential as those factors get addressed. “Direct foreign investment into SA may be constrained by elevated funding costs abroad, however, SA’s ability to sustainably grow the economy is the ultimate driver of investment attractiveness.”

“Government initiatives such as Operation Vulindlela are promising, but execution is critical. Transnet’s financial struggles will require tough decisions such as an unbundling or a bailout, both of which could lead to improved rail efficiency and exports as well as increased investor confidence,” notes Mthwalo.

For SA to become more investor-friendly, decisive action is needed. “Policymakers need to prioritise execution over ideology,” Mthwalo states. Infrastructure investment in rail, ports, and energy is essential, and investors need to see tangible progress. “If foreign investors see tough decisions being made, and an infrastructure resurgence, it will be another positive towards attracting investment,” he adds.

INNOVATIONS AND UNDERDOGS OFFER GOOD INVESTMENT OPPORTUNITIES

Highly visible SA sectors such as mining, financial services, and retail, while highly regarded, may lack growth opportunities because they have reached maturity. “It is probably the sectors which have been in continued decline where low hanging fruit exists, and these include manufacturing, education and energy. The technology sector is always available as it tends to be capital light and reliant on creativity, innovation and talent,” Mthwalo notes.

CURRENCY VOLATILITY CAN BE MANAGED THROUGH HEDGING

The volatility of the rand remains a key consideration for foreign investors. “The rand likely increases the hurdle rate for international investors to commit capital, but other factors come into play. If, for example, the foreign investor takes on a project that relies on local inputs while exporting its production, then the business has a natural rand hedge,” says Mthwalo.

He also highlights that portfolio investors through the Johannesburg Stock Exchange (JSE) in SA can mitigate currency risk through dual-listed rand hedges such as Richemont, a global luxury goods group, to offset their currency exposure.

SOUTH AFRICA’S BOND MARKET OFFERS COMPETITIVE RETURNS

Despite higher interest rates in developed markets, SA’s bond market has delivered competitive returns. “Developed market central banks adjusted interest rates higher over 2021 and 2022 which led to a secular move up in bond yields. SA’s bond index delivered 13% dollar returns in 2024, a period during which the United States (US) Treasury index was flat.” Mthwalo explained.

Figure 1: Bloomberg US Aggregate Bond Index and JSE All Bond Index Total Returns in 2024 in USD

Source: Bloomberg Terminal (2025)

CONCLUSION: BALANCING LOCAL AND GLOBAL INVESTMENT EXPOSURE

While current short-term trends favour global markets, it is worth considering that the JSE All Share Index has outperformed the Morgan Stanley Capital International (MSCI) World Index by 1.34 times over the past 20 years in dollar terms including dividends. Investors with significant offshore exposure could use proceeds from the recent US tech rally to tactically increase their local exposure and capitalise on depressed SA valuations, says Mthwalo. “That is if they are optimistic about SA’s prospects. In this case, it would be a small diversification.”

Figure 2: MSCI World Index and JSE All Share Index Total Returns over 24 Years in USD

Source: Bloomberg Terminal (2025)

Citadel’s investment philosophy embraces diversification to optimise returns. “We believe that effective diversification supports returns. As a client-focussed business, we keep an open mind to consider the client’s needs which informs how we construct their exposure,” Mthwalo concludes.