South African bonds, stocks and the rand could have further room to rise if the country continues its fiscal and economic recovery and eventually regains investment-grade status, according to analysts at Goldman Sachs.
The central argument is straightforward: markets may still be underestimating South Africa’s improving credit outlook. Goldman Sachs believes the country could regain investment-grade status as early as 2028, following years of fiscal deterioration, weak economic growth and repeated credit-rating downgrades.
That does not mean an upgrade is guaranteed. South Africa still faces weak infrastructure, political uncertainty and a history of disappointing economic reforms. But Goldman argues that several of the conditions responsible for the country’s previous decline have begun to improve.
A Long Road Back to Investment Grade
South Africa’s sovereign credit profile deteriorated significantly over the past decade and a half.
The country’s median credit rating fell from BBB+ to BB-, representing a drop of five notches. During the same period, economic growth weakened substantially and government debt increased sharply.
Goldman estimates that South Africa’s long-term growth rate fell from around 4% to roughly 1%, while public debt rose dramatically from about 24% of gross domestic product in 2007.
Those trends eventually pushed the country out of investment-grade territory.
Investment-grade status matters because it can influence how global investors assess a country’s risk. A stronger rating can potentially reduce borrowing costs, attract a broader pool of investors and improve confidence in domestic financial assets.
Goldman Sees Three Major Improvements
Goldman Sachs points to three important changes in South Africa’s economic position.
First, the country’s fiscal outlook has improved.
Budget deficits have narrowed, while Goldman expects public debt to begin a sustained decline rather than continuing the upward trajectory seen in previous years.
Second, economic growth has improved from the extremely weak levels seen during much of the previous decade.
Third, some of South Africa’s most damaging supply constraints have eased.
The country has struggled for years with electricity shortages and problems in its transport infrastructure. These bottlenecks have reduced business activity and discouraged investment.
Progress in these areas could help lift medium-term growth.
Goldman expects the current policy environment to support GDP growth of approximately 2.5% over the medium term, substantially above the roughly 1% average experienced during the previous decade.
The Credit Upgrade Could Come in Stages
Goldman does not expect South Africa to jump immediately back into investment-grade territory.
Instead, the bank expects further upgrades from S&P Global Ratings and Moody’s Ratings over the next year.
Under Goldman’s baseline scenario, the country’s ratings could move from around BB/Ba2 toward BB+/Ba1 before eventually reaching investment grade in 2028.
That timeline depends on South Africa maintaining its recent progress.
Goldman’s assessment follows earlier signs of improving sentiment around the country’s public finances. Stronger-than-expected tax collections have also supported expectations that additional credit-rating upgrades could be possible.
Bond Markets May Have the Most Immediate Upside
According to Goldman, South African government bonds may offer the clearest opportunity if the credit story continues improving.
The bank argues that current market prices do not fully reflect the possibility of South Africa returning to investment-grade status.
Goldman sees potential for the country’s 10-year government bond yield to fall toward 7.6%, representing a decline of approximately 110 basis points from the levels used in its analysis.
Falling bond yields generally mean rising bond prices.
That means investors holding South African government debt could benefit if the country’s credit risk is reassessed positively.
Goldman also sees five-year credit-default-swap spreads potentially falling toward 100 basis points, roughly 20 basis points lower than current implied levels in its analysis.
Why a Credit Upgrade Matters
A sovereign credit upgrade can create a chain reaction across financial markets.
Lower perceived risk can reduce government borrowing costs.
Lower government yields can influence corporate financing costs.
International investors who are restricted to buying investment-grade assets may also become eligible to invest in the country’s debt once the required rating threshold is reached.
The effect can extend beyond bonds.
A stronger credit profile can improve confidence in the currency, banking system and domestic equity market.
However, the biggest immediate gains may occur before an actual investment-grade upgrade if investors begin positioning for that possibility in advance.
That is why Goldman sees value in assets that may not yet fully price in the improved credit outlook.
South African Stocks Could Also Benefit
Goldman also sees structural upside for South African equities.
The argument is somewhat different from the bond case.
Bond markets tend to react directly to changes in sovereign risk and expected interest rates. Equity performance depends more heavily on corporate earnings, economic growth and company-specific conditions.
Still, an improving macroeconomic environment could benefit listed companies.
Lower borrowing costs could support investment and consumer spending.
Improved electricity availability could reduce operating disruptions.
Better transport infrastructure could lower logistics costs.
Together, those changes could improve profitability across several sectors.
Goldman notes, however, that fixed-income assets have already shown a more direct connection to the improving macroeconomic story than equities. The potential stock-market opportunity may therefore be more gradual and dependent on sustained economic reforms.
The Rand Could Gain Support
South Africa’s currency could also benefit from an improving sovereign credit outlook.
The rand is particularly sensitive to shifts in global risk appetite, commodity prices and domestic political developments.
A stronger fiscal position and the prospect of investment-grade status could increase foreign interest in South African assets.
That could support capital inflows.
However, currency gains are far from guaranteed.
The rand remains exposed to international factors outside South Africa’s control, including global interest rates, commodity prices and broader investor appetite for emerging-market assets.
A stronger domestic credit story can help, but it cannot fully protect the currency from global market volatility.
Fiscal Discipline Is Central
The biggest assumption behind Goldman’s optimistic outlook is continued fiscal discipline.
South Africa has made progress in narrowing its budget deficit, but maintaining that improvement will require the government to control spending while protecting investment in infrastructure and public services.
This balance is politically difficult.
Cutting expenditure too aggressively can weaken growth.
Allowing debt to rise too quickly can undermine investor confidence.
The government will therefore need to demonstrate that recent improvements are sustainable rather than temporary.
Economic Growth Still Needs to Improve
Goldman’s projection of around 2.5% medium-term growth would represent progress, but it is not enough to eliminate South Africa’s structural economic problems.
The country continues to face high unemployment, inequality and infrastructure constraints.
A meaningful long-term improvement would require sustained private investment and higher productivity.
That depends heavily on reform.
Businesses need confidence that electricity, ports, railways and regulatory systems will become more reliable.
Without that, stronger fiscal numbers alone may not produce the level of economic growth required to sustain an investment-grade credit profile.
Electricity Reform Has Helped
One of the most important changes in South Africa’s economic environment has been progress in addressing electricity shortages.
Years of power cuts damaged industrial production and created significant costs for businesses and households.
Improvements in energy availability have removed one of the largest constraints on growth.
But the problem is not necessarily solved permanently.
South Africa will need continued investment in generation, transmission and the wider electricity network to ensure that recent progress can be maintained.
Transport Remains a Critical Challenge
Transport and logistics remain another major area of concern.
Problems at ports and in rail networks have increased costs for exporters and limited the country’s ability to take full advantage of commodity demand.
Mining companies, agricultural producers and manufacturers all depend on reliable infrastructure.
Goldman’s optimistic outlook partly assumes that reforms and operational improvements in these areas will continue.
If infrastructure problems return or worsen, the projected economic gains could be difficult to achieve.
The Political Environment Has Changed
South Africa’s political landscape also looks different from previous years.
The transition in 2024 from a single-party African National Congress majority to a coalition government introduced new political dynamics.
Goldman views the current environment as supportive of policy continuity.
That assessment is important because political instability can undermine economic reforms.
A coalition government can create risks if disagreements delay major decisions.
But it can also encourage broader consultation and prevent abrupt policy shifts.
The durability of the coalition will therefore be closely watched by investors and credit-rating agencies.
Stronger Revenue Has Improved the Picture
Government revenue has also performed better than expected.
Earlier National Treasury data showed corporate tax collections benefiting from mining-sector export profits.
Those stronger revenues helped support expectations that South Africa could receive additional credit-rating upgrades over the coming year.
However, there is a weakness in relying heavily on commodity-related revenue.
Mining profits can fluctuate significantly with global commodity prices.
A sustainable fiscal recovery requires stronger structural revenue growth rather than temporary windfalls.
Markets May Be Underpricing the Upgrade
This is the core of Goldman’s investment argument.
The bank believes markets are not yet fully pricing in the probability that South Africa eventually returns to investment grade.
If Goldman is correct, investors who buy South African assets before the market fully adjusts could benefit from falling yields, tighter credit spreads and potentially stronger equity valuations.
But this is also where the argument becomes vulnerable.
Markets may be underpricing the upgrade because investors doubt that the reforms will continue.
South Africa has previously produced periods of optimism that were followed by political setbacks, weaker growth and deteriorating public finances.
The discount may therefore reflect real execution risk rather than a simple market mistake.
Global Conditions Could Complicate the Rally
South Africa does not operate in isolation.
Global bond markets have recently faced pressure from rising yields, inflation concerns and geopolitical tensions.
Higher global interest rates can make emerging-market assets less attractive because investors can earn stronger returns in developed-market bonds with lower perceived risk.
That creates a potential obstacle for South African bonds and equities, even if the domestic outlook improves.
In other words, South Africa could improve its own credit fundamentals while still facing difficult global financial conditions.
Investment Grade Is Not Guaranteed
The 2028 forecast should therefore be treated as a scenario, not a certainty.
To regain investment-grade status, South Africa will likely need to demonstrate sustained fiscal discipline, declining debt, stronger economic growth and continued progress on structural reforms.
A deterioration in any of those areas could delay the timeline.
Political disputes could weaken policy continuity.
Commodity prices could fall and reduce government revenue.
Infrastructure problems could return.
Global financial conditions could also make borrowing more expensive.
These risks explain why the investment opportunity still exists.
If the outcome were certain, markets would probably have already priced it in.
What Investors Will Watch Next
The next major indicators will include budget performance, tax collections, public debt and economic growth.
Investors will also monitor progress in electricity generation, rail and port reform.
Credit-rating decisions from S&P and Moody’s will be particularly important.
Goldman expects further upgrades over the next year, which would represent another step toward its 2028 investment-grade scenario.
For equity investors, corporate earnings will remain crucial.
A stronger economy only benefits stocks if companies can translate improved conditions into higher profits.
Banks, retailers, infrastructure companies and businesses exposed to domestic economic activity could be particularly sensitive to changes in the country’s growth outlook.
Conclusion
Goldman Sachs sees meaningful room for a continued rally in South African financial assets because the market may still be underestimating the country’s improving credit outlook.
The investment bank believes South Africa could regain investment-grade status by 2028 after years of fiscal deterioration and repeated credit downgrades.
The bullish case rests on several developments: narrowing budget deficits, declining public debt, stronger economic growth and progress in addressing electricity and transport bottlenecks.
Goldman expects additional upgrades from S&P and Moody’s over the next year, potentially moving South Africa closer to investment-grade territory before a possible full return in 2028.
The clearest potential opportunity may be in government bonds.
Goldman believes yields could decline substantially if investors increasingly price in the possibility of a credit upgrade.
Stocks and the rand could also benefit, although their performance will depend on a wider range of domestic and global factors.
The weak point in the bullish argument is execution.
South Africa has improved before only to see reforms stall and economic momentum weaken. Strong tax revenues and improved fiscal numbers are helpful, but they must be sustained.
The next two years will determine whether the country is genuinely moving toward investment-grade status or simply experiencing another temporary period of optimism.
For now, Goldman sees a gap between South Africa’s improving fundamentals and how its assets are valued in financial markets.
If reforms continue and the credit upgrades materialize, that gap could create further upside for South African bonds, equities and the rand.
