While 2024 was a decent year of returns for JSE-listed large and mid-cap stocks… It was small caps that dominated the JSE!

Looking at the top 50 best performing JSE stocks of 2024, more than half were small caps. And small caps dominated the top 10.

Some of the biggest winners include SEAM (up 1,160%), Kore, (up 225%), Stefstock (up 215%), Eastplats (up150%) and Nampak (up 125%).

I’m happy to say my Red Hot Penny Shares portfolio owned several of the top performing JSE shares in 2024 enabling readers to score great profits and outperform the JSE Small Cap Index.

I’m not saying this to boast. More so, to prove you can make good profits investing in SA – despite the challenges we face. So, if you missed out on profits in 2024, don’t fret… Because I believe 2025 will be another great for JSE small caps!

What can drive JSE small caps higher in 2025…

#1: Interest rate cuts

It’s been a challenging few years globally, SA Inc included.

From the end of 2021 to May 2023, SA’s prime lending soared from 7% to 11.75%. Meanwhile, interest rates more than doubled!

Obviously, this impacted our finances as we had to pay MUCH more to service our debts. As a result, consumer confidence crashed. For companies, high interest rates stifled profit growth as finance costs on debt increased.

Fortunately, inflation eased substantially in 2024 – allowing SARB to cut interest rates…. twice by 0.25%.

I expect two more cuts in 2025 as inflation remains in SARBs target area of 3%-6%. That should provide a very powerful tailwind for the small cap’s profits, as finance costs decrease.

Usually, smaller companies borrow more often to grow. So, lower borrowing costs mean less expenses – providing a boost to profits.

#2: Economic growth could reach 2%

Lower interest rates play an important role in reviving economic growth, as consumers and businesses spend/invest more.

This is on top of a boost in consumer spending that we will see thanks to the withdrawals from the two-pot retirement system.

Better yet, SARB estimates the two-pot retirement withdrawals could boost GDP by 0.7% in 2025.

Of course, the economy isn’t the only thing to benefit… More spending will boost revenues and profits in sectors such as fashion retailers, grocery stores, food producers, leisure and others where small caps operate.

Additionally, no loadshedding can provide a boon for our economy. In fact, some analysts believe the local economy could grow by as much as 3% per annum with stable power. This would boost the earnings of companies with local operations and sharply reduce the amount of money they must spend to limit the impact of load-shedding.

3% growth in 2025 is very optimistic in my view. In 2023, both SARB and Intellidex estimated loadshedding took off 1.8% of our GDP, which I think is a much more accurate number.

Simply put – if we experience no loadshedding in 2025, SA economic growth could top 2% – which is certainly not impossible.

In short, my overall view on SA small caps in 2025 is bullish! Stable power, higher consumer spending, reduced debt and finance costs will continue to boost revenues and profits going forward.

And if the SA economy achieves much-needed economic growth in 2025, then I expect small caps to fly!