South African Business Confidence Slump: Where to Dig for Equity Gold

The South African economy is at a crossroads. While the Q2 2025 Business Confidence Index (BCI) plunged to 40—its lowest level in over a year—the data masks pockets of opportunity. Let's parse the numbers, identify the sectors holding up, and pinpoint where investors can dig for gains.

The BCI Dip: A Mixed Picture

The RMB/BER BCI's 5-point Q2 decline to 40 reflects broad pessimism, but context matters. The index remains above its long-term average of 43 and well above the May 2024 post-election low of 107.8. Meanwhile, the SACCI BCI—a different measure—peaked at 125.8 in February 2025, dipping slightly to 123.5 in March. This suggests underlying resilience amid sectoral headwinds.

Sector Spotlight: Where to Invest

1. Wholesale Trade: The Bright Spot
   The only sector to improve, wholesale trade confidence hit 50—a neutral score—driven by non-consumer goods traders. Look for companies like Pick n Pay (PNP.JSE), which benefits from stable B2B demand, or Woolworths (WHL.JSE), which has diversified beyond consumer goods.

2. Retail: A Risky Gamble
   Retail confidence fell to 42, but don't write it off yet. Interest rate cuts (repo rate now at 7.75%) could boost sales. However, higher personal taxes and the rand's volatility (recently trading near R19/$) pose risks. A cautious play: Shoprite (SHP.JSE), which dominates essential goods.

3. Building Contractors: Bet on Non-Residential
   Residential construction confidence hit a near three-year low (35 points), but non-residential projects (e.g., mining, industrial) fared better. Back AECI (AEC.JSE) or Aveng (AVN.JSE), which have exposure to infrastructure and mining contracts.

4. Manufacturing: Wait for the Turn
   Confidence remains stuck at 33 points, hampered by export demand and energy shortages. Avoid here unless you're a long-term contrarian.

Structural Challenges: The Elephant in the Room

• Logistical Nightmares: Transnet's port and rail inefficiencies are a drag. Support Gore Mutual (GMI.JSE), a logistics firm with government contracts.
• Political Uncertainty: The ANC's declining support (22% without Ramaphosa) and DA-GNU tensions are risks. Monitor the rand's movements—weakness could boost exporters like Anglo American (AGL.JSE).

The Playbook: Tactical Moves

• Buy Wholesale/Non-Residential Plays: PNP, WHL, AEC.
• Avoid Manufacturing and Residential Construction: Too exposed to domestic demand.
• Hedge with Exports: AGL, which benefits from a weaker rand and global commodity demand.

Final Call

The BCI dip isn't a recession call—it's a sector rotation signal. South Africa's equity market is a minefield, but gold is still there. Target resilient sectors, hedge against rand volatility, and keep an eye on political stability. This isn't the time to go all-in, but selective bets can pay off.

Action Items:
- Buy 10% of your portfolio in PNP and AEC for short-term gains.
- Short-term hold on SHP until tax impacts on retail are clearer.
- Keep a close watch on the June BCI release—a rebound to 45+ could spark a broader rally.

South Africa isn't dead—it's just in a slump. Dig smart.