Goldman downgrades South African equities, bullish on emerging Europe

(Reuters) - Goldman Sachs downgraded its recommendation on South African equities to "marketweight" from "overweight" on Thursday, saying the European Union's growth prospects presented better opportunities to invest in the region's emerging markets.

Consequently, the Wall Street brokerage bumped up its rating on the Czech Republic to "neutral" from "underweight" and kept its "marketweight" rating on Turkey and Poland.

The remarkable shift in Europe's fiscal policy and optimism around a potential Ukraine peace deal have fuelled a rally in EU-exposed equities such as Poland, Greece and the Czech Republic, analysts led by Sunil Koul, Goldman's global emerging market equity strategist, said in a note.

Earlier this week, Germany's parliament approved plans for a massive spending surge, while the U.S. and Ukrainian presidents have agreed to work together to end Russia's war with Ukraine.

Polish, Greek and Czech stocks have advanced between 16% and 25% year-to-date. In comparison, South African stocks have risen 10% so far in 2025, while the broader EM index has gained about 6%.

"Notwithstanding near-term risks from higher tariffs, EM Europe is still the most inexpensive pocket within EM, and is trading at a 35% discount to MSCI EM," Koul said.

While South African equities offer mid-teen EPS growth at reasonable valuations, there are limited catalysts in the near term, the brokerage said.

It said China-sensitive stocks, like miners, have already rallied sharply and domestic cyclicals could continue to lag amid the uncertainty over its budget, which was recently rejected by most big parliamentary parties.

Goldman said that just last week it closed its trade banking of South African equities' outperformance against EM-excluding China, which was initiated last May, at a potential gain of 21%.

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Savio D'Souza)