(MENAFN- The Arabian Post) South African equities climbed to unprecedented levels on Thursday, driven by buoyant momentum in mining and financial sectors. The benchmark FTSE/JSE All-Share Index rose past its prior peak, cementing the capital market's status as one of the continent's top performers this year.

The rally has been underpinned by a strong commodity backdrop: iron ore, platinum, and gold all posted gains, boosting mining stocks across the board. The Public Investment Corporation disclosed that its listed equity portfolio grew by 22.5 percent year-on-year, benefiting from gains in precious metals and industrials even as its alternative energy holdings declined. Its reliance on cyclical sectors after reduced exposure to financials illustrates the market's tilt toward resource plays.

Support also came from the banking sector: Capitec Bank reported a 26 percent leap in headline earnings per share for the six months ending 31 August, declaring an elevated interim dividend of 26.20 rand per share. The solid performance underscores investor confidence in South Africa's domestic lenders despite broader macro pressures.

Notably, Kwena Moloko, Equity Research Sales at Absa CIB, appeared on CNBC Africa to contextualise the surge. She flagged valuation concerns ahead, stating that“while current momentum is strong, investors must weigh the risk that the market is pricing in ideal conditions.” Her caution signals that despite the euphoria, pockets of overextension are emerging.

The stock market's ascent contrasts starkly with challenges in the wider economy. Domestic growth remains fragile: in the second quarter, GDP expanded by just 0.8 percent, and unemployment hovers above 30 percent. Policymakers have struggled to accelerate structural reforms, particularly in areas such as energy and logistics, which remain drag factors. Yet analysts say the stock rally is less about South Africa's short-term fundamentals and more about external tailwinds: elevated commodity demand globally and capital inflows seeking high-yield exposure.

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Foreign direct investment, however, paints a more complex picture. In Q2, the country recorded a significant FDI outflow of 73.5 billion rand-largely triggered by Anglo American's spin-off of its platinum unit into Valterra Platinum. Some of that capital was reclassified as portfolio investment inflows, but the shift underscores how structural factors in mining can influence capital flows.

Another dimension reinforcing inflows has been state and institutional asset managers riding the rally. PIC's strong gains have not only added retail investor confidence but also deepened systemic exposure to equity markets. Some analysts warn that heavy institutional participation may exacerbate volatility if sentiment turns.

On the export front, South African manufacturers, particularly in the automotive sector, are under stress from external headwinds. A 25 percent U. S. tariff on South African car exports slashed volumes by 90 percent in Q2 relative to a year earlier, threatening job losses and further pressuring trade balances. The automotive sector, which contributes heavily to manufacturing exports, faces an urgent need to reposition-particularly toward electric vehicle value chains and regional markets.

The currency has played its role too: the rand strengthened modestly during the rally, supporting investor returns when converted into foreign currencies. Yet, currency volatility remains an ever-present risk, especially in the face of global monetary tightening or capital flight.

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