SA stocks look cheap right now, by one clear measure at least. And the evidence suggests they will stay that way.
SA stocks have climbed 8% this year, just edging ahead of their emerging-market peers. But that is largely down to strength in global tech investor Naspers, gains in international luxury goods seller Richemont and a rally in some miners and precious metals producers. For the rest, investors have largely shunned a market hobbled by a faltering economy and anaemic earnings prospects for its companies.
The skewed performance has left SA price-earnings ratios muted, with Johannesburg stocks trading at 12.5 times estimated earnings, below the five-year average of 14.6. Domestically focused companies are trying to eke out profits in an economy that contracted by the most in a decade in the first quarter, while unemployment is running at the highest rate in 11 years and fragile consumer confidence is recovering from the lowest levels since 2017.
Arqaam Capital strategists wrote this week that there is little upside for SA stocks until the bigger economic picture improves. Huge government bailouts of the embattled state power utility will increase the country’s fiscal deficit and makes the loss of SA’s last remaining investment-grade rating from Moody’s Investors Service more likely, they said in a note.