South Africa's leading investment firm Ninety One Plc has highlighted a compelling opportunity in the country's non-commodity equities. According to John Bickard, portfolio manager of the firm's R8.7 billion ($518 million) Value Fund, these stocks appear deeply undervalued after lagging behind local bonds and the broader equity index in 2025.
While South Africa's benchmark stock index has surged over 50% in dollar terms this year - outperforming European, emerging market, and U.S. indices - driven by soaring precious metal prices, domestic banking, retail, and industrial stocks have significantly underperformed. The ALBI index tracking local government bonds has delivered 38% returns, with 10-year rand bond yields dropping a quarter from April highs to 8.36%.
Bickard, whose fund ranks among South Africa's top five performers (excluding commodity funds) over the past decade with 17% annualized returns, argues that discounted cash flow valuations suggest domestic equities should command higher prices. "This disconnect makes no sense - equities essentially represent leveraged bond valuations," he noted. "Despite widespread praise for South African bonds, we see greater value in currently stagnant equities."
The African largest economy shows multiple signs of recovery after years of corruption and mismanagement: chronic power outages have eased; state-owned port and rail operations are stabilizing after throughput plunged to 30-year lows; while credit outlook upgrades, removal from FATF's grey list, a 13% rand appreciation against the dollar, and slowing inflation all point to improving fundamentals.
Though U.S.-South Africa relations remain tense - with 30% tariffs on some exports and no U.S. ambassador appointed - Bickard observes: "There's objectively less to worry about now than at year-start." With economic growth accelerating from sub-1% decade averages, he believes foreign investors waiting for faster expansion have overly favored bonds. "We need foreign capital returning and local fund managers to stop chasing gold/platinum while dumping domestic stocks."
The Value Fund has increased domestic equity exposure to 50% of its portfolio (versus benchmark's 35%), with plans to buy more if prices decline further. Half its assets target mid-caps yielding nearly 6%, while large caps like Bidvest Group Ltd. and Woolworths Holdings Ltd. (yielding ~4%) comprise 20%. The fund trades at ~8x P/E with ~5% blended yield.
Bickard projects 35-40% upside potential (possibly reaching 50%) as investors recognize improving growth and lower discount rates. He also views South African equities as a cheaper indirect play on precious metals - benefiting from price rallies while offering limited downside at current valuations. His ideal scenario: stable gold/platinum prices supporting the economy until equities catch up, with bond yields remaining steady. "These stocks offer limited downside but substantial upside potential," he concluded.
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