SA's economy grew 0.5%. Rates went up, not down. By most logic, two JSE stalwarts should be having a miserable year, except somehow they're not, and the reason says more about SA investing than the GDP number ever could. More from EasyAssetManagement.
Part of our thematic investing series, following on from our webinar and our recent blogs on commodities, semiconductors and energy. This time we bring the thematic lens home to South Africa.
Thematic investing is not only for global portfolios. The same process applies at home: identify the structural forces driving the South African economy, map where they create durable demand, and then find the businesses best positioned to capture it. One of the most powerful of those forces is the emerging consumer.
What do we mean by that? Millions of South Africans are steadily moving into the formal financial economy: opening a first bank account, taking out a first insurance policy, buying a first bed or fridge on store credit, getting a first smartphone contract. Each of those steps creates a customer who did not exist before. Even when the overall economy barely grows, this migration up the income ladder keeps generating new demand, and the companies built to serve it can grow far faster than the economy around them.
South Africa remains a constrained economy. While GDP grew 0.5% quarter-on-quarter in the first quarter, that pace is still too slow to meaningfully boost consumer spending, create jobs or generate the sustained economic growth needed to address the country's biggest structural challenges. There are, however, encouraging signs of progress. Ongoing reform efforts and improving fiscal discipline have strengthened confidence in South Africa's outlook, with ratings agencies taking a more positive view of the country through recent outlook revisions and rating upgrades.
Source: Stats SA
Then the war intervened. The conflict between the United States and Iran pushed oil prices sharply higher, and energy costs ripple through the entire economy. When fuel becomes more expensive, so does transporting goods, running factories and producing everyday essentials. The result has been a meaningful increase in inflation, including in South Africa.
The South African Reserve Bank (SARB), whose primary mandate is to maintain price stability and which now targets inflation of 3%, responded in May with its first interest rate hike in around three years, taking the repo rate to 7%. With inflation expected to remain elevated, the scope for interest rate cuts appears limited and further hikes are far from being ruled out. For consumers already under pressure, this represents another headwind, and one investors are watching closely.
Here is the part that matters for investors. In an economy growing this slowly, there is no real rising tide to lift all boats. That makes business model and management quality decisive. The emerging consumer tailwind is real, but it does not lift everyone; it rewards the companies specifically built to serve that customer segment well.
Two long-standing holdings in our South African equity portfolios show what that looks like in practice.
Source: Lewis Group
Lewis predominantly sells furniture, appliances and beds to lower- and middle-income South African households. On paper, that is a tough market. In practice, Lewis has built its model around the one thing its customer needs most: access to credit. Many of its customers cannot buy a bed or a fridge for cash, so the credit book is in many ways as much the product as the furniture, and managing it well is the core skill.
The results, for the year to March 2026, speak to that skill. Revenue grew 11.1 percent, passing R10 billion, the operating margin expanded to 23.8 percent, and headline earnings per share (HEPS) grew 18.3 percent. Management has historically shown a clear commitment to shareholders: exceptional dividend, share buybacks when it makes sense, and further invested in growing the credit book and store footprint. Notably, Lewis is doing this with discipline within a tough consumer environment.
This is what we mean by winning in a slow economy: a well-run model, in what would ordinarily be seen as an unfashionable market, compounding steadily.
Many investors file Capitec under "financials". We see it as one of the purest expressions of the emerging consumer theme on the JSE. Capitec built its business as the entry point into formal banking for South Africans and has spent two decades expanding its services as its clients' needs have grown, to the point where it now serves customers across the whole economy.
The numbers, for the year to February 2026, are hard to argue with: headline earnings up 23 percent to R16.8 billion, a return on equity of 31 percent, the dividend up 23 percent, and an active client base of 26 million, a significant portion of the South African market.
Just as important is where those earnings come from. Personal banking contributes 41% of headline earnings, while fintech and insurance account for 53%, spanning value-added services such as airtime, electricity and payments, as well as the Capitec Connect mobile offering. More broadly, non-interest income amounted to 67% of income from operations after credit impairments, highlighting how much of the business now extends beyond traditional lending.
Management describes the personal bank as the launchpad: win the client relationship, then serve more of that client's financial needs. It is a purpose-built financial services platform to capitalise on the tailwinds driving the emerging consumer theme, with a diversified earnings base that is less reliant on net interest income and therefore more resilient through the cycle.
South Africa's economy is constrained, and the latest inflation shock has made life harder for the consumer. But the emerging consumer theme keeps working underneath the headline numbers. The businesses that are purpose-built for that customer, run by managements that allocate capital well, are still compounding, and in a low-growth market those are precisely the businesses worth owning.
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