The FTSE/JSE Africa All Share Index is up 44% in the past year, with metals and mining stocks leading the gains. It has risen over the past 12 months, the longest period on record dating back to 1995, and the benchmark's 7% jump in February was its biggest monthly gain in more than two years.
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South African shares' record 12-month winning streak will be extended further on the back of rising metals prices and a stronger rand, according to Bank of America.
The South African benchmark hit a new record high on Monday, led by gains in gold and silver after the US and Israel attacked Iran. Although the index retreated as the session progressed, it still outperformed broader emerging markets estimates on the day.
BofA South Africa strategist John Morris said the country's market was benefiting from a rare alignment of supportive global and domestic forces, particularly expectations of elevated metals prices and a weaker dollar.
“We're in a good position,” he said in an interview. “You don't see this combination often, and we still have the runway.”
The FTSE/JSE Africa All Share Index is up 44% in the past year, with metals and mining stocks leading the gains. It has risen over the past 12 months, the longest period on record dating back to 1995, and the benchmark's 7% jump in February was its biggest monthly gain in more than two years.
The commodity cycle could support the market for the next 12 to 15 months, Morris said. Gold has increased by 86% in the last year while platinum has increased by 146%.
“This is the decade of resources; US inflation is up,” Morris said. “It feels like the 70s.”
The hostilities in the Middle East do not change his constructive outlook on the outlook for South Africa, he said, noting that precious metals prices were strong on Monday.
He said the rand, which he considers undervalued, could also rise further, which would help push down bond yields and support banks and other domestic sectors. The currency has strengthened about 15% against the dollar in the past year.
Higher commodities mean a stronger rand, which strengthens South Africa's domestic companies, Morris said. He said financial and industrial stocks could deliver meaningful returns as they gain access to miners. Morris said South Africa's latest budget “just supports the case” for investment in local assets.
Although economic growth remains slow and reforms are underway, lower inflation may give the South African Reserve Bank room to cut interest rates, which would support cyclical growth, he said.
“You're not going to get the same big returns as last year,” Morris said. “But the road to market is still high, there will be setbacks along the way.”