Celebrating the small victories

Feel free to reach out to PSG Wealth Manager Schalk Louw directly.

The thing about us South Africans is that we are a proud nation. It’s certainly a wonderful trait to have, but it can also, at times, come with a few extra grey hairs. Why do I say this? Well, when the Proteas win, we walk around with pride, but when they lose, suddenly they are branded the “Chokers.” The Springboks don’t lose very often, but when we went down 38–22 in August, after leading 22–0 in the first 15 minutes, it felt almost as though we had lost a loved one. We are fiercely competitive and, more importantly, often very hard on ourselves.

That is why it’s so important that we celebrate the smaller victories as well. Take, for example, the FTSE/JSE All Share Index, or simply the JSE, as we know it. Up until a few years ago, you couldn’t open a media outlet without finding the JSE being labelled a “choker”: a dead investment going nowhere. Some experts even went as far as to advise investors to rather take their money offshore, with the S&P 500 repeatedly being punted as the “better option.”

This is exactly why we should celebrate short-term victories when they appear. If an investor had put money into the S&P 500 exactly five years ago (on 28 August 2020), their investment would have grown by 113% in rand terms five years later. That is undeniably an excellent return. But over the very same period, the JSE grew by 120%.

Graph 1: FTSE/JSE All Share versus the S&P 500 Composite in Rand (source: Refinitiv Workspace)

Naturally, the question arises: what now? Is it time to sell the JSE and once again look to the S&P 500? The short answer is that no crystal ball can give you a definitive answer. What we can do, however, is look at valuations to gauge whether the JSE currently appears expensive relative to something like the S&P 500, helping us make a more informed decision.

And here is where things get interesting. Looking at the MSCI South Africa’s 25-year historical forward price-earnings ratio (FPE), based on Refinitiv Workspace data, we find that at the current multiple of 10.4 times earnings, the MSCI South Africa Index is trading not only well below what is considered “expensive,” but also under its 25-year average of 11.2 times.

Graphs 2 & 3: MSCI South Africa Forward PE versus S&P500 forward PE

By contrast, the S&P 500 today trades at 22.6 times earnings. This is well above its 25-year average, and at levels last seen during the dot-com bubble of 2000.

This is not to say that the S&P 500 is about to follow the same path as it did in 2000. What it does say, however, is that we should celebrate this moment, and that a hasty, wholesale shift to the US might not be necessary. At least not if you are looking at valuations alone.

Here’s to the JSE… cheers!