Best news in 11 years for South African investors

Momentum in South Africa’s equity market sparked by a landmark election earlier this year is maintaining its pace, with the stock exchange’s own shares one of the targets for investors chasing returns.

“One way to get exposure to the growth of Africa’s capital markets would be the Johannesburg Stock Exchange (JSE), which is a publicly listed company,” said Thea Jamison, managing director at Change Global Investment, which has been buying the shares.

JSE, which operates Africa’s biggest stock and bond exchanges and acts as a proxy for South African companies more broadly, has risen almost three times as fast as the benchmark index over the past four months.

Political changes in South Africa are bringing renewed interest from investors, coupled with rising trading fees and relatively cheap valuation, and are making the exchange’s shares attractive, Jamison added.

The dividend yield, showing the return an investor can expect from dividends alone expressed as a percentage of the stock price, is 6.4% on a trailing 12-month basis and 6.8% based on Bloomberg dividend forecasts for the next 12 months.

That’s the second highest among its peers behind the Warsaw Stock Exchange.

South African stocks have experienced their strongest third quarter in 11 years, with analysts tracked by Bloomberg seeing the gains extending over the coming 12 months.

The FTSE/JSE Africa All Share Index has climbed 13% so far this year, heading for the best year since 2021, notching at least 13 record highs in the process and outpacing a rally in MSCI Inc.’s gauge of emerging-market equities.

The government of national unity, installed after May’s election, has spurred hopes of fixes for the energy and transport problems that have hobbled Africa’s most industrialised economy, including its mining sector.

Meanwhile, the country’s central bank lowered borrowing costs for a second successive meeting on Nov. 21 and said its modelling showed further cuts were in the offing, but the outlook is uncertain.

“Stock exchanges can be seen as levered plays on a country’s macro environment,” said Gustavo Medeiros, head of global macro research at Ashmore in London, who is watching for accelerated economic growth among signs of improved investor sentiment toward South African equities.

Medeiros sees some financial and consumer stocks benefiting from an improving macro environment that is still “underappreciated” by international investors, who remain focused on US politics and China’s economic challenges.

Positive Momentum

“We have seen a lot of positive momentum in South Africa facing businesses on the JSE since the better-than-expected outcome of the national elections at the end of May and beginning of June,” said Andrew Dowse, a portfolio manager at Merchant West.

“The primary driver of returns for the JSE is equity trade flow, which continues to improve as local managers tilt their view more favourably towards SA Inc. stocks.”

Merchant West Investments, also known as Bridge Collective Investments, is among the largest holders of JSE stock, according to data compiled by Bloomberg.

The portfolio manager sees recent initial public offerings, including Pick n Pay Stores unbundling Boxer, as a “symptom of improving demand from investors to participate in a rally and their willingness to pay up for new investment opportunities.”

“Although the intention behind Boxer to float was largely to raise cash for Pick n Pay, the achieved price was at the top of the guidance range, showing good demand from local investors for companies that have reasonably good growth prospects,” he said.

Read: Things are pointing up for South Africa – but it will take time