Stocks of non-commodity South African companies look set to rally next year given they trade at a deep discount and trailed the performance of both local bonds and the wider equity gauge in 2025, according to a veteran fund manager at Ninety One the nation’s top investment firm.

Surging precious-metals prices triggered a rally of more than 50% in South Africa’s benchmark share index in dollar terms this year, outpacing gains in European, emerging-market and US gauges. Local government bonds, as measured by the ALBI index, returned 38%, with the yield on 10-year rand debt plunging by a quarter to 8.36% from an April high.

But shares of local banks, retailers and industrial firms have “lagged massively,” presenting an opportunity, said John Biccard, who manages Ninety One’s R8.7-billion Value Fund.

When calculating a share’s value today by projecting its future cash flows and adjusting these back to present value using a discount rate — typically a risk-free one such as the yield on government debt — locally focused stocks should be worth more, said Biccard, whose fund is the fifth-best performer over the past decade in South Africa excluding those that are commodities-focused, delivering an average annual return of almost 17%.

“It makes no sense whatsoever, because an equity is a leveraged valuation on a bond,” said Biccard. “Everyone says South African bonds have done really well and they’re still bullish. And I say, ‘Well, you’re crazy. You just go and buy these South African equities that have done nothing. That is a much smarter thing to do.’”

After years of corruption and mismanagement, Africa’s biggest economy is showing signs of improvement. Regular power blackouts have subsided and the operations of the state-owned ports and freight-rail operator are stabilizing after volumes fell to a three-decade low, hitting exports.

A credit upgrade by S&P Global Ratings, South Africa’s removal from the Financial Action Task Force’s dirty-money list, and slower inflation amid a 13% gain in the rand to the dollar this year are further evidence of a better trajectory.

Despite growing tensions between Pretoria and Washington — with the Trump administration imposing 30% tariffs on selected South African products entering the US and no ambassador in the American capital — “there are definitely fewer things to worry about than there were on January 1 — that’s for sure,” said Biccard.

While the economy hasn’t expanded more than 1% annually for the past decade, the rate is quickening. The sluggish growth has seen foreign investors favor local bonds over equities as they wait to for expansion to pick up, said Biccard.

“You need the foreigners to come in and you need the South African fund managers to stop buying gold and platinum and selling SA Inc.,” said Biccard.

He has raised the Value Fund’s exposure to local stocks, with half of the portfolio now in South African equities, compared with an estimated 35% for the benchmark, and he plans to keep adding if prices fall further.

About half the fund is invested in mid-sized companies with dividend yields near 6%, while large domestic firms such as Bidvest Group and Woolworths Holdings account for about 20%, trading on yields of roughly 4%, he said. Overall, the fund trades at about eight times annual earnings, with an aggregate dividend yield near 5%.

The shares may be worth as much as 50% more, with Biccard expecting 35% to 40% upside as investors rerate the portfolio once they recognize improving growth and lower discount rates.

Biccard argues that South African shares offer a cheaper, indirect way to play gold and platinum, saying they should benefit if metal prices keep rising and are unlikely to fall given their already low valuations.

His ideal scenario is for gold and platinum prices to move sideways, supporting the economy until South African shares catch up, while bond yields stay flat.

“There’s limited downside and there’s quite a lot of upside,” he said.