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Decent growth but high unemployment
The South African economy underwent a relatively rapid boom at the beginning of the millennium, which was replaced by stagnation and decline. The country's economic level, expressed in terms of gross domestic product (GDP) per capita at purchasing power parity, ranks South Africa as high as 115th in the global rankings with less than $16 000. Despite this, South Africa is one of the most developed countries on the African continent. However, the country is plagued by a huge unemployment rate of almost 28% and inflation of almost 5%, although it has been falling in recent years. South Africa's economic growth is estimated at 1.6% for this year and 2.6% for 2025. These are rates comparable to the Czech Republic. The fact is, however, that investing in South Africa carries relatively high risks, mainly stemming from the country's political instability.
The stock market directly or through ETFs
Let's take a look at the potential investment opportunities in this African country. The national currency of South Africa is the South African rand (ZAR). Its exchange rate against the US dollar has mostly fluctuated between 14 and 18 ZAR to the dollar over the past five years.
The rand reached its strongest level during this period in early May 2021, when one US dollar could be obtained for 13.35 ZAR. Since then, however, the rand has weakened significantly to the current 17.75 ZAR to one dollar. This represents a depreciation of approximately 33%. Over the past year and a half, however, the South African currency has been essentially stable against the US dollar.
Evolution of the rand-dollar exchange rate over the last 5 years; Source: Investing.com *
The index has earned over 50 % in 5 years
From a retail European investor's perspective, it therefore makes sense to invest in South African company shares. The main stock market in South Africa is the Johannesburg Stock Exchange. The main index of this market is the SA40 index. As the name suggests, the index is made up of the shares of the 40 most valuable companies traded on the exchange. A total of 274 companies are traded on the Johannesburg Stock Exchange.
For those who are not very familiar with individual stock titles but still want to have South African stocks in their portfolio, investing in an ETF that replicates the main SA40 index would be recommended. Its performance over the past five years has been approximately 51 %. However, the performance over the past year is only about 9 %.
Performance of the SA40 index on the Johannesburg Stock Exchange over the last 5 years; Source: Trading Economics*
These are the top 5 best performing stocks
In terms of individual stocks, MR Price Group Ltd has been the best performing company on the Johannesburg Stock Exchange over the past year, with its shares appreciating by more than 80 % over the past 12 months. It is a retail company and investment recommendations experts strongly recommend buying this stock.
MR Price Group's stock performance over the past 5 years; Source: Investing.com *
The next four places are followed by shares of Capitec Bank Holdings Ltd (77.08 % valuation for the year), Anglogold Ashanti Plc (52.21 %), Multichoice Group, Ltd (43.44 %) and Nepi Rockcastle, n.v. (41.7 %).
Top 5 best performing stocks on the Johannesburg Stock Exchange (% change over the last 12 months); Source: TradingView.com *
However, the five-year rankings are significantly different, and of the previous top five companies, only banking house Capitec Bank Holdings, Ltd. is still in the top five, with its shares gaining almost 147 % over the past five years. The five-year ranking is led by mining company Gold Fields, Ltd. with a performance in excess of 243 %. It is followed by Shoprite Holdings, Ltd. (147 %), the aforementioned Capitec Bank Holdings, Investec, Plc. (126.93 %) and Investec, Ltd. (123.12 %).
Top 5 best performing stocks on the Johannesburg Stock Exchange (% change over the last 5 years); Source: TradingView.com *
Mineral extraction is a key sector
South Africa is also a major exporter of commodities. Gold is the absolute number one export, followed by platinum, coal briquettes and diamonds. From an investment point of view, it appears advantageous to track the performance of the shares of companies involved in commodity mining. Within the Johannesburg Stock Exchange's main index we find the shares of the following mining companies: Anglogold Ashanti, Plc, Anglo American, Plc, Impala Platinum Holdings, Ltd, Gold Fields, Ltd, BHP Group, Ltd, Northam Platinum Holdings, Ltd, Sibanye Stillwater, Ltd and Anglo American Plat, Ltd. However, the best performing company at the moment is the aforementioned Anglogold, whose shares have gained over 52 % in the last 12 months.
AngloGold's stock performance over the last 5 years; Source: Investing.com *
In conclusion, although South Africa is a democracy, its prosperity has been threatened by political instability for many years. Therefore, some experts argue that South African equities are undervalued compared to other comparably developed countries. This may be a realistic picture of the situation, but it is important not to forget the political risk that exists in South Africa.
Commentary by David Matulay, Analyst at InvestingFox
Warning! This marketing material is not and should not be construed as investment advice. Past data is not a guarantee of future returns. Investing in foreign currency may affect returns due to fluctuations. All securities transactions may result in both gains and losses. Forward-looking statements represent assumptions and current expectations that may not be accurate or are based on the current economic environment, which may change. These statements are not guarantees of future performance. InvestingFox is a trademark of CAPITAL MARKETS, o.c.p., a.s. regulated by the National Bank of Slovakia.
* Past data is not a guarantee of future returns.
** 5-year stock performance charts:
https://www.investing.com/equities/caphold,
https://www.investing.com/equities/multichoice,
https://www.investing.com/equities/gold-fields-ltd,
https://www.investing.com/equities/shoprite-holdings-ltd-(j),
