On March 11, 2025, J.P. Morgan announced the downgrade of South African equities from “overweight” to “neutral,” citing concerns over the nation’s economic slowdown and the effectiveness of its policy reforms. The brokerage highlighted that, despite governmental efforts, South Africa’s economic growth is projected to remain below 2% over the next two years.
Since the 2008-09 global financial crisis, South Africa has struggled to achieve growth rates sufficient to address persistent issues of inequality and unemployment. In January, South African Reserve Bank Governor Lesetja Kganyago projected a 2% growth rate by 2025. In February, President Cyril Ramaphosa announced a second wave of reforms aimed at boosting struggling state companies and investing in infrastructure. Despite these initiatives, the operating environment remains challenging for many businesses.
External factors have further complicated South Africa’s economic landscape. In February, U.S. President Donald Trump signed an executive order cutting financial assistance to South Africa, citing disapproval of its land policy and a genocide case at the International Court of Justice against Israel. These developments have strained U.S.-South Africa relations, creating uncertainty around the performance of South Africa’s domestic assets.
The downgrade by J.P. Morgan reflects a cautious stance among investors. Foreign investors have been net sellers of South African equities, with non-residents selling a net R103 billion in equities in 2023, a 40% increase compared to the same period in 2022. This trend has contributed to reduced trading volumes on the Johannesburg Stock Exchange (JSE), impacting liquidity and price discovery.
In contrast, South African government bonds have attracted foreign investors, who purchased a net 25.8 billion rand ($1.4 billion) in bonds in 2024. This preference for bonds over equities is attributed to the lower-risk returns of bonds and concerns over external risks affecting South African companies exposed to international markets.
The J.P. Morgan downgrade also brings attention to specific sectors and companies within South Africa. For instance, in July 2023, MultiChoice, a South African pay-TV and technology company, experienced a sharp decline in its share price following a downgrade by J.P. Morgan from “neutral” to “underweight.” The brokerage expressed concerns over MultiChoice’s increased investment in its streaming service, Showmax, and the competitive landscape against global players like Netflix and Amazon Prime Video.
Similarly, in 2019, J.P. Morgan downgraded Anglo American’s stock, citing risks related to its Minas Rio expansion in Brazil and uncertainties surrounding its South African assets. The downgrade reflected concerns over potential delays in licensing and the challenging operating environment in South Africa.
The cumulative effect of these downgrades and economic challenges underscores the need for South Africa to address structural issues hindering its growth. While policy reforms are underway, their implementation and effectiveness remain critical to restoring investor confidence and achieving sustainable economic growth. The focus now shifts to the government’s ability to execute these reforms and navigate external pressures to revitalize the nation’s economy.
