Goldman Sachs sees potential rally in South Africa assets as markets overlook investment grade return

Goldman Sachs thinks the market is sleeping on South Africa. In a note led by economist Andrew Matheny, the bank argues that South African government bonds, equities, and the rand all carry meaningful upside because investors have yet to price in the country’s improving chances of clawing back an investment-grade sovereign credit rating.

The numbers behind Goldman’s call

Goldman’s projections are specific and aggressive. The bank sees local-currency government bond yields declining by more than 100 basis points to 7.6%. Five-year credit-default swap spreads, a key measure of how risky the market considers South African debt, are expected to tighten to roughly 100 basis points from around 116.

The rand, meanwhile, is projected to appreciate about 9% against the US dollar.

The timeline Goldman has in mind is a return to investment-grade status by 2028. That would be driven by shrinking fiscal deficits, a reduction in public debt, GDP growth approaching 2.5% in the medium term, and tangible improvements in South Africa’s electricity and transport infrastructure.

How South Africa lost its way, and how it’s finding it again

South Africa lost its last investment-grade rating in 2017. Currently, S&P rates the country at BB with a positive outlook, while Moody’s has it at Ba2, also with a positive outlook.

The turnaround story started gaining real traction after the 2024 elections produced a coalition government that has, so far, prioritized structural reform. Energy sector improvements and transport infrastructure investments have been central to that agenda.

S&P awarded South Africa its first credit upgrade in twenty years back in November 2025. Goldman’s argument is that the market hasn’t fully absorbed what it means.

Goldman’s earlier commentary from July 2026 highlighted strong corporate tax collections boosted by mining sector performance. Those collections rose approximately 5.5% to R385 billion on a semi-annualized basis, a figure that supported the case for continued fiscal improvement and further rating upgrades from agencies like S&P and Moody’s.

The country has also achieved a significant primary budget surplus, a metric that rating agencies watch closely because it signals that a country can service its debt without borrowing more to do so.

Why the market gap matters

When a country moves from junk to investment grade, a whole new class of institutional buyers gains access to its bonds. Many large pension funds, insurance companies, and sovereign wealth funds have mandates that restrict them to investment-grade assets only. An upgrade doesn’t just change sentiment. It literally unlocks new pools of capital.

For context, the journey from BB to BBB- (the lowest investment-grade tier at S&P) typically requires multiple upgrades. South Africa would likely need to move from BB to BB+ and then to BBB-. The positive outlooks from both S&P and Moody’s suggest the agencies see a credible path forward.