South African equities still priced for pessimism

South African equities present investors with a puzzle. On most conventional measures, the market looks attractively valued. Dividend yields on the major banks already sit above inflation, government bonds yield around 8.5%, and the JSE trades on a forward priceto-earnings multiple of roughly 11 times, well below its historical range of 13 to 15 times. Yet the stock market is not attracting the capital one would expect. 

During our recent investment conference, themed “The New World Disorder”, experts in equity and institutional investment discussed whether South Africa is simply a price taker driven by global cycles or if the market is undervaluing an attractive domestic story. We believe it is both, and understanding this distinction is important for how capital should be allocated.