The JSE has been a disaster for a decade – it may get even worse

The South African stock market has produced poor returns for the past decade, and this is unlikely to end anytime soon, with the election potentially prolonging the pain for local investors. 

This is feedback from the portfolio manager of Ninety One’s Value Fund, John Biccard, who told Business Day TV that South African companies are cheaply valued for very good reasons. 

“The South African equity market has basically been a disaster for the last ten years,” Biccard said. 

Local equities have underperformed the S&P 500 in US dollar terms by around 10% per annum over the past decade. 

Not only has the JSE underperformed the world’s premier stock market, but it also has underperformed its emerging market peers. 

Biccard said this is because of a lot of bad news being priced into local stocks, making them attractively valued. 

South African shares are trading at a record-low valutaions in relative to other emerging markets and their more developed peers. 

Worryingly, local shares are also near all-time lows in absolute terms. 

Biccard gave the example of Absa to illustrate just how disastrous the past six years have been for local shares exposed to the South African economy. 

Six years ago, Absa was trading at around R200 per share, and the rand was at R12/USD. This made an Absa share effectively worth $16 per share. 

As of the end of April 2024, Absa was trading at R150 per share with the rand at R18/USD, making its shares effectively worth $8 per share. In dollar terms, Absa has halved in value. 

Biccard explained that things have only really gone wrong in the last six years, which have just been a litany of woes. 

He said this period has been marked by multiple economic shocks, from state capture to Covid-19 and load-shedding. This has only been compounded by the uncertainty surrounding the upcoming election. 

“With respect to the valuation of South African shares, it is clear that the market expects the next 10 years to be at least as bad as the last.”

Local equities currently trade at the largest valuation discount ever relative to both the MSCI Emerging Markets Index and the MSCI World Index. 

Biccard said this is with respect to all the valuation metrics that matter – price-to-earnings ratio (P/E), dividend yield, EV/EBITDA and price-to-book.

Positioning is also at an extremely negative level, with foreign investors voting with their feet and selling R710 billion rands worth of South African equities over the last seven years. 

Local investors have joined the exodus following the National Treasury’s decision to allow pension funds to invest up to 45% offshore. 

The average Regulation 28-compliant fund now holds just 39% in South African equities versus nearly 70% 18 years ago.

The net effect is that you can buy a diversified portfolio of South African banks, retailers, and industrial stocks today on a P/E of 9 times with at least a 6% dividend yield.


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