Top South Africa fund manager predicts: Local non-resource stocks are seriously undervalued and expected to rise by at least 35% by 2026.

The senior fund manager of South Africa's top investment company Ninety One Plc pointed out that, given the deep discount of non-commodity businesses' stock prices in South Africa and their underperformance compared to local bonds and overall stock indices in 2025, these stocks are expected to rebound next year. Since the beginning of the year, the surge in precious metal prices has pushed the South African benchmark stock index in USD up by over 50%, outperforming European, emerging market, and US stock indices. The return on local government bonds, measured by the ALBI index, reached 38%, and the yield on ten-year rand bonds dropped by a quarter from its April peak to 8.36%. However, John Bickard, manager of the Value Fund at Ninety One with assets of 8.7 billion rand (5.18 billion USD), stated that stocks of local banks, retailers, and industrial companies have "severely lagged" in performance, creating investment opportunities. The fund has been the fifth best-performing fund in South Africa over the past ten years (excluding commodity funds), with an average annual return of close to 17%. Bickard explained that, using the discounted cash flow valuation method (typically using risk-free rates such as government bond yields as the discount rate), local stocks should receive higher valuations. "This is completely illogical because stocks are essentially a leveraged valuation of bonds. Although South African bonds are praised for their outstanding performance and are expected to continue to perform well, I believe it would be wiser to shift focus to currently lagging South African stocks." After years of corruption and mismanagement, South Africa, the largest economy in Africa, is showing signs of improvement: regular power cuts have been alleviated; state-owned ports and freight rail operations, which suffered a 30-year low in throughput due to reduced exports, are gradually stabilizing; S&P Global Ratings raised the credit outlook, South Africa was removed from the Financial Action Task Force's anti-money laundering gray list, and the rand has appreciated by 13% against the dollar this year, accompanied by slowing inflation, all providing evidence of economic improvement. Despite the growing tensions between South Africa and the United States (the Trump administration imposing a 30% tariff on some South African exports and the US not sending an ambassador), Bickard emphasized, "Compared to earlier this year, there is now less need to be overly concerned." In the past decade, South Africa's economic growth rate has not exceeded 1%, but the current pace is accelerating. Bickard analyzed that this slow growth has led foreign investors to prefer local bonds over stocks while waiting for the economy to pick up speed. "We need foreign capital inflows, and South African fund managers need to stop chasing gold and platinum and selling local company stocks." Currently, the Value Fund has increased its holdings in local stocks, with South African stocks accounting for 50% of the portfolio (significantly higher than the benchmark index's allocation of around 35%), and Bickard plans to continue increasing positions if stock prices further decline. According to Bickard, around half of the fund's capital is allocated to mid-sized enterprises with a dividend yield of nearly 6%, with large local enterprises such as Bidvest Group Ltd. and Woolworths Holdings Ltd. with dividend yields of around 4% making up about 20% of the portfolio. Overall, the fund's price-to-earnings ratio is around 8 times, with a total dividend yield close to 5%. Bickard expects that as investors realize the improvement in South Africa's economic growth and the decline in discount rates, and reevaluate the value of stocks based on this, these local stocks could achieve an increase of 35% to 40%, with the potential for a maximum increase of up to 50%. He also suggests that investing in South African stocks is a cheaper indirect way to position oneself in gold and platinum assets. Even if precious metal prices continue to rise, South African stocks will benefit from it; and given their current low valuations, there is limited room for further decline in stock prices. Bickard envisions an ideal scenario where gold and platinum prices trade sideways, providing support for the South African economy until local stocks catch up, while bond yields remain stable. "The downside risk of these stocks is limited, but the upside potential is significant," he concluded.