South African equities are set to turn the corner, with investors believing that the market is currently undervalued. <\/p>\n\n\n\n
According to Eben Louw, Portfolio Manager at Naviga Solutions, South African equities have seen significant foreign outflows and extreme bearish sentiment from the global investment community. <\/p>\n\n\n\n
The 2023 Alexander Forbes Large Manager Watch Annual Survey even showed that local asset managers have down-weighted their allocation to local equities over the past 5 years, dropping below the long-term average of 55% to 40%.<\/p>\n\n\n\n
“This bearish sentiment and continued outflows have resulted in depressed valuations,” said Louw.<\/p>\n\n\n\n
“Based on a forward price-to-earnings ratio, the JSE is currently trading almost 30% cheaper than the level it typically trades at compared to emerging market peers, and close to 40% cheaper than the typical level compared to global equities (MSCI World).”<\/p>\n\n\n\n
“Your investment entry point, i.e., the price you pay, is one of the most important drivers of future returns. Therefore, the current discounted valuations increase the likelihood of outsized returns in the future<\/strong>.”<\/p>\n\n\n\n Although short-term drivers remain uncertain, small shifts in sentiment could result in significant value being unlocked for local equities. <\/p>\n\n\n\n On the local front, improvements in load shedding and the nation’s logistics sector and even a free and fair election on Wednesday, 29 May, could help.<\/p>\n\n\n\n Moreover, improved global growth, an interest rate cutting cycle, a push to emerging markets, and a weaker dollar could also help boost local equities. <\/p>\n\n\n\n