SA Inc. Shares — Undervalued, Under-owned, Underestimated

After years of selling pressure, South African equities are showing signs of revival. The JSE hit record highs in September, driven by mining stocks — after gold and platinum prices surged to all-time peaks. Yet the real story lies beneath the surface: years of foreign disinvestment have left SA Inc. shares deeply undervalued. Portfolio Manager Nancy Hossack explains why this may be the year SA Inc. equities reclaim the spotlight.

VALUE IN NEGLECT

Foreign investors have steadily cut exposure to non-mining South African shares, pushing valuations to levels seldom seen outside crises. Valuations of domestically focused companies — especially financials and industrials — are now far below those in global markets. 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. That discount is as wide as it was during the dot-com bubble — but it will not last forever.

SMALL COMPANIES, LARGE OPPORTUNITY

The selloff has been most severe among smaller, domestically focused firms. Large-cap retailers such as Clicks trade on multiples near 25 times earnings; smaller peers like Rhodes Food closer to seven. Dividend yields tell the same story: about 4.5 percent for the broader market, and near 5 percent among small caps — more than double what investors earn on US equities. For patient investors, these are exceptional starting points.

A RERATING WAITING TO HAPPEN

If US market valuations were to normalise from 27 to 19 times earnings, future returns would shrink sharply. 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.

REFORM AND RESILIENCE

Sustained progress on energy, logistics and fiscal reform remains vital. Power shortages and transport bottlenecks still constrain growth, though new public-private partnerships are starting to help. 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. After a decade in the shadows, South African equities — long unloved, now surprisingly strong — may finally be ready to shine.