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One thing looking up for South African investors

South African equities have an attractive valuation, with most being under-owned and undervalued, says economist Sanisha Packirisamy and head of investment research Herman van Papendorp from Momentum Investments.

According to the researcher’s latest Market and Economic Outlook for the first month of this year, South African stocks could stand in good stead during potential global equity drawdowns – especially during subsequent recoveries when global risk appetite rises.

The economists added that there is a lot of bad news that is currently priced into South African equities. However, this enhances the future return potential from current levels.

“South African equity valuations remain cheap against emerging markets (and even more so against developed markets), with South Africa a superior dividend payer within emerging markets and a large forward price to earnings discount to emerging markets,” said Momentum Investments.

Momentum pointed to research conducted by SBG Securities that illustrated that apart from insurance, real estate, banks and capital goods, all MSCI South African sectors are currently trading at a discount to MSCI Emerging Markets.

South Africa’s markets are expected to benefit from Russia exclusion from emerging market indices and investor worries about China’s invisibility within emerging markets due to regulatory overreach, said the group.

As shown in the graph below, South Africa is likely to benefit from both Russia’s and China’s uncertainty – especially because it is the fifth most under-owned market within global emerging market equity funds.

As a result of this, South Africa’s market should have “meaningful rerating potential from current cheap valuations when global risk appetite improves,” Momentum said.

“Our overall expectation is for some rand appreciation as global risk appetite improves later in 2023,” said Momentum.

“This would erode the local currency returns from global assets. Together with the more attractive valuations available from South African assets that provide a high margin of safety, we prefer South African asset classes over global assets in 2023.”

Momentum is not the only financial services company predicting positive performance from South Africa’s markets – on 9 January, Jason Swartz, a portfolio manager at Old Mutual Investment Group said that the best return opportunities might be from domestic asset classes going into 2023.

According to Swartz, South African equities have been undervalued for a while and are a good value compared to equities from both developed and emerging markets.

“Locally listed stocks have a much better chance of delivering positive earnings growth in the coming year than global counterparts, and these have proven quite resilient in a tough economic environment,” said Swartz.


According to DailyInvestor, local investors in South Africa can expect good news from the equity market.

The publication compiled the top five stock picks listed on the Johannesburg Stock Exchange (JSE) by industry experts, including:

  • FirstRand/First National Bank – Wayne McCurrie from FNB Wealth and Investments

  • Coronation Fund Managers – Bright Khumalo from Vestact

  • Motus – Jacques Pretorius from Sinayo Securities

  • Renergen – Jaco Eager from Rand Swiss

  • Life Healthcare – Chantal Marx from FNB Wealth & Investments

The graph below shows the performance of the overall performance of the top 40 JSE-listed stocks over the past six months:

(Note: the stocks listed above reflect the views of the fund managers, not BusinessTech or DailyInvestor.)

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