South Africa’s stock market is at a turning point. After years of uncertainty, a wave of political reform, economic improvements, and renewed investor confidence is reshaping the investment landscape. For those willing to look beyond the noise, the opportunities are compelling. At Arysteq Asset Management, we believe now is the time to be positioned to take advantage of the anticipated potential upside.
The formation of the Government of National Unity (GNU) in 2024 has laid the groundwork for real economic progress. With a strong focus on policy stability, infrastructure investment, and private-sector collaboration, South Africa is moving in the right direction. One of the most notable successes has been the improvement in energy reliability. Load shedding, once a major drag on growth, has eased significantly due to President Cyril Ramaphosa’s Energy Action Plan. Over R400 billion in private investment has flowed into the renewable energy sector, strengthening the electricity grid and supporting broader economic activity. The South African Reserve Bank (SARB) even revised its GDP impact from load shedding downward, signalling optimism about future growth prospects.
Despite this improving backdrop, South African equities remain undervalued relative to global markets. At the time of writing, the JSE All Share Index was trading at 1.73 times book value, which is 25% below its 20-year historical average. The price-to-earnings (PE) ratio reflects an 8% discount to the long-term average, and the dividend yield stands at 3.6%, significantly higher than the MSCI World Index of 2.6%. As investor sentiment recovers and South Africa’s risk premium declines, this provides a strong foundation for future returns.
At Arysteq, we believe that disciplined, active management is the key to unlocking value in South African equities. Our approach focuses on fundamental research, a deep understanding of companies, and performing our own valuations. We are committed to identifying businesses with strong fundamentals and growth potential. Our South African Equity Fund is well-positioned relative to the market. When comparing our top ten holdings with the broader JSE Capped SWIX Index, we see stronger fundamentals in the companies in our portfolio. The price-to-book (PB) ratio, for example, stands at 1.87 times compared to 2.92 times for the adjusted index. Our dividend yield is higher at 4.38%, and our portfolio equity positions’ financial stability remains robust with a debt-to-equity ratio of 42.7% and a current ratio of 2.1, both stronger than the JSE Capped SWIX Index.
Over the past year, we have refined our portfolio positioning to take advantage of market opportunities. In the banking sector, we are overweight in banks, all of which offer strong dividend yields and attractive valuations. In contrast, we remain underweight in Capitec, which trades at a high price-to-book ratio of 7.67 and offers a lower dividend yield of just 2.26%. Our early positioning in South African Real Estate Investment Trusts (SA REITs) has delivered strong returns, supported by improving fundamentals in the sector. In the specialty retail sector, as stocks like Mr Price rallied over 50% last year, we took profits and reduced our exposure, ensuring our portfolio remains aligned with valuation and risk considerations.
Several broader trends are set to boost South Africa’s economy in 2025. Falling interest rates are expected to stimulate economic activity, with the SARB likely to continue its cutting cycle. The implementation of the two-pot retirement system is projected to unlock significant consumer spending, particularly benefiting the retail and discretionary sectors. Additionally, ongoing infrastructure investments in energy, transport, and water will create new opportunities for businesses and investors alike.
In recent weeks, the spat between the US and South African presidents and potential tax changes in South Africa have weighed on the market. Depending on how these issues unfold, they could negatively impact the South African consumer and companies exporting to the US.
At Arysteq, we see 2025 as a defining year for South African equities. The combination of economic recovery, attractive valuations, and strategic portfolio positioning sets the stage for strong performance. Our success in the property sector, where our fund returned 26% in just eight months, is a testament to the depth of our research and investment expertise. With the same disciplined approach, we believe our South African Equity Fund is positioned to outperform. For investors looking for value and opportunity, the time to act is now.
