South Africa’s hidden goldmine for investors

While South African equities have shot the lights out in 2025, SA Inc stocks remain undervalued and could present a good opportunity for investors.

Much of the record highs seen on the JSE so far this year have been driven by mining stocks, as 2025’s commodity rally has significantly boosted mining companies, particularly gold and platinum miners.

However, after years of foreign disinvestment, SA Inc stocks have gone largely overlooked and remain deeply undervalued, presenting an attractive opportunity for investors.

This is feedback from Foord Asset Management portfolio manager Nancy Hossack, who said 2025 may be the year SA Inc equities reclaim the spotlight.

SA Inc stocks refer to companies heavily exposed to the local economy, meaning they rely on South Africa’s economy for the vast majority of their earnings.

Of the ten largest companies on the JSE based on market capitalisation, only FirstRand and Capitec truly count as SA Inc companies, considering where most of their revenue is generated.

JSE-listed mining companies are not often considered SA Inc stocks, since most have mines and other operations outside the country.

Therefore, they are less exposed to the local economy than local retailers like Mr Price or Clicks, for example.

Hossack explained that foreign investors have steadily cut exposure to non-mining South African shares over the past decades, pushing valuations to levels seldom seen outside crises.

The Reserve Bank’s latest quarterly bulletin showed that foreign investors have continued to dump JSE-listed shares in 2025, with non-residents selling R165 billion worth of stocks in the first eight months of 2025. 

This is significantly more than the R93 billion sold in the same period in 2024, and has severely affected the valuations of local companies, particularly SA Inc stocks.

“Valuations of domestically focused companies – especially financials and industrials – are now far below those in global markets,” Hossack said.

“Investors pay roughly half as much for a rand of earnings on the JSE’s Financial and Industrial Index as they do for equivalent exposure on the S&P 500 Index in the US.” 

She said this discount is as wide as it was during the dot-com bubble, but will not last forever.

SA Inc set to shine

Hossack explained that the selloff has been most severe among smaller, domestically focused firms.

While large-cap retailers like Clicks, listed on the JSE with a market cap of around R88 billion, trade on multiples near 25 times earnings, smaller peers like Rhodes Food, valued at R5.7 billion, trade closer to seven times. 

She said dividend yields tell the same story, at about 4.5% for the broader market and near 5% among small caps, which is more than double what investors earn on United States equities. 

“For patient investors, these are exceptional starting points,” Hossack said, adding that a rerating awaits.

She explained that if US market valuations were to normalise from 27 to 19 times earnings, future returns would shrink sharply. 

In contrast, in South Africa, even a modest rerating from about 12 to 15 times would lift expected real returns meaningfully. “For small caps, the upside is greater still,” she said.

However, Hossack emphasised that it is crucial to sustain progress on ongoing reforms in sectors like energy and logistics.

“Power shortages and transport bottlenecks still constrain growth, though new public-private partnerships are starting to help,” she said. 

In addition, South Africa should continue to focus on fiscal reforms, as a credible fiscal path would further compress risk premiums and attract capital back into local markets.

“Despite the challenges, sentiment is improving, yields are generous, and valuations remain low,” she said. 

“After a decade in the shadows, South African equities – long unloved, now surprisingly strong – may finally be ready to shine.”

Hossack’s comments come as South African equities are having one of their best years on record, with the local MSCI index posting a return of over 50% year-to-date.

This makes South Africa’s index the best-performing among the MSCI regions, returning over 10% more than the second-placed MSCI China index.

It should be noted that this rally has largely been driven by factors outside of the country’s control, like the commodity rally that has seen gold and platinum prices soar.

Therefore, while stocks like mining companies and other multinationals have performed very well, SA Inc stocks are posting relatively poor returns.

“We have to dive down to a more granular level to understand how the various components of an economy are working – or not working – and interacting with each other,” Melville Douglas chief investment officer Bernard Drotschie said. 

“When we do this, we typically find paradoxes. South Africa is a case in point. GDP growth alone suggests a stagnant economy. However, if we turn to the stock market, we get a very different picture.”