I’ve been investing for more than a decade and over that time, I’ve been blessed with opportunities to build many connections in the investment field. And not just here in SA. But all over the world. Through these connections, I’m fortunate enough to receive tons of valuable investment insight every day. This includes detailed company and market reports, investment ideas, economic data and market charts…you name it.
Today, I’d like to share some of this insight with you today. Who knows it could provide useful guidance on where you should look to invest in 2025 and beyond…
Chart #1: US stocks are far from cheap – beware!
The chart below shows the relationship between the S&P 500’s starting price-to-earnings ratio (PE) and returns.
In simple terms, the lower the starting PE, the higher the return you can expect to make. And vice versa.
After a strong rally in 2024, the S&P 500 sits on a historical high PE of 27. In fact, according to co-chief investment strategist for John Hancock Investment Management, Emily Roland… “We are at the third-highest valuations on the S&P 500 in modern history only behind 1999/2000 and 2021. If this valuation upside continues, it leaves forward-looking returns less compelling.”
Speaking of forward returns, Vanguard – the second largest asset manager in the world – released a report with their own future return expectations.
Vanguard expects the S&P 500 to generate a meagre 3,2%-5,2% annualised return over the next 10 years. The asset manager also expects US value to outperform growth and US small-caps to outperform large-caps.
But the most interesting point in my view is emerging markets will outperform the S&P 500. And as South Africa is an emerging market, the JSE could benefit.
Just remember…
These are predictions based on financial models. They might not be right. So, don’t take their outlook as gospel. However, it provides useful insight and guidance on where you could generate higher returns from stocks over the next 10 years.
Chart #2: Look who’s outperformed global stock markets since May 2024…
While reading a recent Financial Times opinion piece by Robert Armstrong and Aiden Reiter, I came across a chart that should make SA investors smile…
See below…
It shows the returns of six stock indices since May 2024 – including the JSE, S&P 500, Brazil’s Ibobespa and India’s Nifty 50.
Now, look who’s leading the pack…
That’s right. It’s the JSE!
Investors are optimistic the Government of National Unity (GNU) could revitalise SA’s economy, and that’s ignited a massive JSE rally.
The important question is, can this rally continue?
I touched on this topic in November’s 2024 issue of Red Hot Penny Shares… In short, there are a few catalysts that can drive the JSE higher. These include lower interest rates, China’s stimulus and valuations.
Consider that even AFTER rallying in 2024, SA stocks trade on a forward PE of just over 10. That’s a 20% discount to the Emerging Markets Index, and a 44% discount to All Country World Index.
Simply put…SA stocks are still seriously undervalued. Like the JSE small cap I recently shared with Red Hot Penny Share readers…
It’s debt-free, very profitable, holds cash valued at nearly DOUBLE its ENTIRE market, and trades at 64% discount to its REAL share price value. Of course, there’s also huge profit potential.
My point is, there are great bargains on the JSE right now, you just need to know where to look. And if all goes well with our economic recovery, I expect the JSE to continue breaking new market highs.
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