JSE Sector Rotation Report

Research Notes October 2025 > https://www.unum.capital/post/roct2025

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A Review of Market Rotation and Sector Dynamics As at 24 October

1. Executive Summary

The JSE is undergoing a distinct and accelerating market rotation. The dominant 'SA Inc.' theme, which has been primarily driven by Banks and Insurers, has observably cooled from its peak momentum. While this suggests the initial explosive rally phase is over, the sectors remain technically strong, indicating a potential consolidation rather than a reversal.

Conversely, the Resources complex (Miners, Gold, Platinum) continues to exhibit significant and spreading weakness, signaling a clear capital outflow from commodity-driven sectors. The most notable and aggressive event this week is a major bullish reversal in the Chemicals sector. This sector has violently shifted from a 'High Bearish' posture to 'Strong' on a short-term basis. This is a classic high-risk, high-reward signal, suggesting that aggressive, risk-tolerant investors may be bottom-fishing in one of the market's most beaten-down areas.

2. Introduction: Market Rotation Overview

This report provides a technical deep-dive into the rotational dynamics of key JSE sectors. By analyzing momentum across long, medium, and short-term timeframes, we aim to identify the underlying capital flows that define the market's risk appetite. This analysis helps pinpoint emerging leaders, identify established laggards rolling over, and highlight potential inflection points for tactical allocation.

The current landscape is defined by three primary and divergent themes:

1. 'SA Inc.' Strength: Domestic-facing sectors like Banks and Insurers maintain their market leadership. Though their initial surge is moderating, this is likely a healthy pause as the market digests recent gains. This theme appears driven by a tentative return of optimism regarding the domestic economic and political outlook.

2. Resource Weakness: Capital continues to flow out of the broad resources complex. This is no longer isolated to precious metals (Gold, Platinum), as General Miners have now decisively joined the bearish trend. This shift is likely tied to a weakening global manufacturing outlook, specific concerns over Chinese demand, and a strong US Dollar.

3. Outlier Reversals: The market is showing signs of life in unexpected places. The ongoing stabilization in the Technology sector is constructive, but the sharp, V-shaped reversal in Chemicals is the most significant development. This suggests a potential hunt for deep value and a willingness to take on high levels of risk in deeply oversold sectors.

3. Key Weekly Momentum Shifts

The most significant short-term posture changes during the week are as follows, with added technical context:

• Major Reversal (Bullish):

  • Chemicals: Shifted from 'High Bearish' to Strong. This is a violent, high-momentum reversal, suggesting a potential capitulation bottom has formed and aggressive new buying has entered the sector.

• Momentum Lost (Bearish):

  • Miners: Shifted from 'Neutral' to Weak. This is a significant breakdown, confirming that the weakness in Gold and Platinum is now spreading to the entire resources complex.

  • Telecoms: Shifted from 'Strong' to Neutral. This indicates a failure to follow through on recent strength, putting the sector at risk of rolling over completely.

• Momentum Cooling (Neutral):

  • Banks: Shifted from 'High Bullish' to Strong.

  • Insurers: Shifted from 'High Bullish' to Strong. Both sectors are exiting an overbought state, which is a normal and often healthy part of a sustained uptrend, representing a pause or consolidation.

  • Luxury Goods: Shifted from 'Strong' to Neutral. This is a more concerning shift, indicating a rapid loss of momentum that could see it fall into the 'Lagging' quadrant.

• Minor Relief (Bullish):

  • Paper & Pulp: Shifted from 'Weak' to Neutral. This appears to be a technical, oversold bounce rather than a new uptrend, but it signals a temporary halt to the selling pressure.

• Weakness Maintained:

  • Gold Miners, Platinum Miners, Consumer Discretionary, and Coal Miners all remain in a Weak short-term posture. The persistence of this weakness, even during minor market bounces, is a strongly bearish signal.

• No Change (Neutral):

  • Technology, Consumer Staples, and Hospitals remain Neutral. Their inability to gain traction in either direction suggests market indecision and a lack of a clear catalyst for these sectors.

4. Relative Rotation Graph (RRG) Analysis

The Relative Rotation Graph (RRG) plots sectors based on their long-term performance (Y-axis) against their medium-term momentum (X-axis) relative to the Top 40 benchmark. This gives a clear visual map of market rotation.

• Leading Quadrant (Strong Performance, Strong Momentum):

  • Banks: This sector is the sole occupant, confirming its status as the market's clear and undisputed leader. This is the quadrant for core bullish holdings and overweight allocations, as it represents established, outperforming uptrends.

• Improving Quadrant (Weak Performance, Strong Momentum):

  • Insurers (New): Showing strong medium-term momentum, this sector is rotating powerfully towards leadership, aiming to join the Banks.

  • Chemicals (New): A powerful momentum surge has launched this sector from 'Lagging' into 'Improving'. This quadrant often contains the next generation of leaders or aggressive turnaround plays.

• Weakening Quadrant (Strong Performance, Weak Momentum):

  • Technology: A former leader, this sector is now showing deteriorating momentum, suggesting distribution or profit-taking.

  • Gold Miners: Fading from a strong long-term position as momentum collapses.

  • Platinum Miners: Following the same bearish path as Gold Miners.

  • Consumer Staples (New): The addition of this core defensive sector is notable. It implies that even "safe" areas of the market are not immune to the rotational cooling and are beginning to underperform.

• Lagging Quadrant (Weak Performance, Weak Momentum):

  • Miners: Confirmed underperformance and weak momentum make this a core underweight.

  • Telecoms (New): Has completed a full negative rotation from Improving, through Weakening, and now decisively into Lagging.

  • Luxury Goods (New): A significant fall from a previous leadership position, indicating a major shift in sentiment against the sector.

  • Paper & Pulp, Coal Miners, Hospitals, Consumer Discretionary: These sectors remain entrenched underperformers and should be avoided.

5. Multi-Timeframe Momentum Dynamics

Analyzing momentum across different timeframes reveals the nature and health of the trends:

• Consolidating Strength: Sectors maintaining robust uptrends across multiple timeframes. This signifies a healthy, established uptrend that is likely pausing before its next leg higher. These are ideal candidates for "buy-on-the-dip."

  • Banks

  • Consumer Staples

• Waking Up / Momentum Surge: Sectors showing powerful recent acceleration, often from a deeply oversold base. These represent high-beta, tactical opportunities for traders but carry higher risk as the new trend is not yet established.

  • Chemicals (Critical reversal, very high momentum)

  • Insurers (Confirming a bullish turn out of a base)

  • Paper & Pulp (Minor bounce, likely short-term)

• Fading Fast / Major Risk: Sectors with rapidly deteriorating short-term momentum or which are failing to maintain recent strength. This is a critical warning sign that former leaders are rolling over and distribution is underway.

  • Miners (New breakdown)

  • Telecoms (New breakdown)

  • Luxury Goods (New breakdown, fall from leadership)

  • Gold Miners (Persistent selling pressure)

  • Platinum Miners (Persistent selling pressure)

6. Macro-Fundamental Context

These technical shifts are not occurring in a vacuum. They are likely driven by the following fundamental narratives:

1. 'SA Inc.' Revival Cools but Holds: The moderation in Banks and Insurers from "High Bullish" to "Strong" suggests the initial, exuberant rally surge is complete. This is a natural progression. The market is now looking for fundamental confirmation—in the form of positive economic data, a stable political environment, or a favorable interest rate path—to justify the next leg higher.

2. Resource Weakness Spreads: The pullback in Gold and Platinum has been joined by General Miners. This confirms a broad-based capital rotation out of the global-facing resource sector. The drivers are likely threefold: slowing global manufacturing data (PMIs), persistent concerns over the health of the Chinese property and construction sectors (a key-end market for industrial commodities), and a strong US Dollar, which creates a headwind for all commodity prices.

3. Bottom-Fishing in Outliers? The sharp reversal in Chemicals, one of the year's worst-performing sectors, is a fascinating development. This is unlikely to be a fundamental-led recovery at this stage. It is more likely a signal of high-risk, speculative capital hunting for deep value and betting that the "worst is over." This can be a "smart money" accumulation signal, but it can also be a dangerous value trap.

7. Strategic Outlook & Sector Rankings

Based on the combined technical analysis, we rank the sectors and group them by strategic outlook.

Sector Rankings (Most to Least Preferred)

1. Banks: Clear leader. Strong medium and short-term posture. Remains the clearest expression of the pro-SA theme.

2. Consumer Staples: Strong long and medium-term posture. A core defensive holding, though its weakening short-term momentum bears watching.

3. Insurers: Strong short-term momentum is confirming a bullish turnaround. Rotating powerfully into a leadership position alongside Banks.

4. Chemicals: Massive short-term reversal. This is a high-risk, high-beta tactical play, but it currently has the strongest buy signal in the market.

5. Technology: Stabilising. Its strong long-term profile provides a solid base, making it a candidate for accumulation if it can reclaim short-term momentum.

6. Paper & Pulp: Bouncing from deeply oversold levels. This is a short-term tactical relief rally, not a new long-term uptrend.

7. Hospitals: Stagnant. Remains neutral-to-weak across all timeframes. There is a significant opportunity cost to holding this sector.

8. Telecoms: Lost all momentum, fading back to neutral/weak. This is a significant downgrade, and the sector should be avoided.

9. Luxury Goods: Lost all momentum. A significant downgrade from a recent leadership position, indicating a major change in market opinion.

10. Gold Miners: Persistent short-term weakness within a weakening long-term picture is a major concern.

11. Platinum Miners: Locked in a downtrend with persistent weakness.

12. Miners: New short-term weakness makes the broad resource sector bearish and a clear underweight.

13. Consumer Disc.: Weak across all timeframes. No signs of relief. This sector is a clear proxy for a struggling consumer.

14. Coal Miners: Persistently weak and deeply bearish. Should be avoided entirely.

Strategic Groupings

• Core Bullish Holdings (Overweight): These sectors have established, strong uptrends and are suitable for overweight positions.

  • Banks

  • Consumer Staples

• Rotation / Turnaround Watchlist (Monitor for Entry): These sectors show promising technicals but require confirmation. They are suitable for tactical traders or for accumulation pending a breakout.

  • Insurers (Bullish Turn)

  • Chemicals (High-Risk Reversal)

  • Technology (Stabilising)

  • Paper & Pulp (Oversold Bounce)

• Persistent Weakness (Underweight / Avoid): These sectors are in established downtrends and should be underweighted, avoided, or used as hedging candidates.

  • Miners

  • Gold Miners

  • Platinum Miners

  • Luxury Goods

  • Telecoms

  • Coal Miners

  • Consumer Discretionary

  • Hospitals

8. Risk Analysis & Contrarian Signals

• Key Risks to Current Trends:

  1. 'SA Inc.' Rally Fails: The cooling momentum in Banks/Insurers is currently a consolidation. However, if it breaks key support levels (e.g., the 50-day moving average), it could signal a "bull trap" and a full reversal if positive economic data does not materialize.

  2. Resource Weakness Accelerates: A technical breakdown in key commodity prices (e.g., iron ore, copper, PGM basket) could turn the current resource weakness into a rout, dragging the entire Top 40 index lower.

  3. Chemicals Reversal is a 'Fakeout': The sharp bounce may be a short-lived, technical "dead cat bounce" in a structural downtrend. A failure to hold the recent lows would invalidate the signal and trap recent buyers.

• Contrarian Signals to Watch:

  1. Capitulation in Laggards: A high-volume, panic-selling day in sectors like Consumer Discretionary or Coal Miners could signal final seller exhaustion, "cleanse" the market of weak hands, and set the stage for a sharp relief rally.

  2. Tech Breaks Higher: If Technology's bounce gains momentum and breaks medium-term resistance, it could signal a broad return of "risk-on" appetite that challenges the current defensive, domestic-focused 'SA Inc.' trade.

  3. Resource Support Holds: If Gold and Platinum miners successfully test and hold major long-term support levels and begin to build a base, it could signal that the profit-taking phase is over and that smart money is re-accumulating for the next cycle.

Lester Davids

Senior Investment Analyst: Unum Capital