By Khuleko Siwele.
An index of South African banking stocks climbed to a record high on Thursday after JPMorgan Chase & Co upgraded the country’s financial sector to overweight, citing an improving macro backdrop, attractive valuations and a positive earnings outlook.
“While gross domestic product growth is unexciting, momentum in structural reforms and recent sovereign rating upgrades are positive developments reinforcing a higher-quality growth in 2026,” JPMorgan analysts, including Baron Nkomo, wrote in a report.
The FTSE/JSE Banks Index gained 1.2% by 1:16 p.m. in Johannesburg, on track for an all-time-high close.
The gauge is up more than 16% this year but has underperformed the broad stock benchmark, which has rallied about 33%.
Bank valuations remain misaligned with the South African 10-year bond yield, which has fallen by more than 300 basis points since April 2024, according to the JPMorgan analysts.
Most South African banks are trading at price-to-earnings multiples of less than 10 times, they wrote, compared with a ratio of 14 for the broad benchmark.
JPMorgan forecasts 11% average growth in earnings-per-share for banks in the next financial year and 10% the year after that.
Nedbank Group, which is down more than 7% year-to-date, is JPMorgan’s top pick in the South African financials sector. The stock’s underperformance versus the banks index is unjustified, as the lender is well-positioned to benefit from the South African reform agenda and it offers an attractive entry point, the analysts said.
JPMorgan notes that business confidence in South Africa country is on an upward trend, and consumer confidence, while still cautious, is also improving.
The South African Reserve Bank introduced a new inflation target of 3%, moving away from the previous of 3% to 6% target range.
“We expect the new, lower inflation target to drive structurally lower and steadier interest rates in the medium to long term,” the analysts wrote. “Household balance sheets are gradually recovering, which should translate into higher retail credit demand in 2026.”