Why valuations matter more than ever

Every November, Black Friday fever grips consumers around the world as they try to spot (and purchase) the best bargains. We compare deals, look for discounts, and convince ourselves we’re getting real value for money. But as any seasoned bargain hunter knows, not everything on sale is a steal. Some “deals” are worth every cent, while others end up costing more in the long run. But as investors, we often forget that the same principle applies to investing – it’s not about how cheap something looks, but whether it’s worth the price you pay.

This year, with both local and global equity markets performing strongly, valuations have become a critical conversation. Investors are once again asking: What remains good value? Buying quality companies at the right price – and not just following the crowd – can be the difference between overpaying and building wealth sustainably.

Value versus price: The Black Friday parallel

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett

In the world of investing, price and value aren’t the same thing. One shouldn’t take the price of a share at face value. A company trading cheaply might be struggling for a reason, while another that looks expensive could be delivering consistent profits and growth. In the same way, a share trading at a low price isn’t necessarily undervalued, and an expensive share isn’t always overpriced. Smart investors focus on quality businesses that are temporarily “on sale”. The key is what you get for what you pay – just like spotting whether that 50%-off “deal” on a new gadget is truly a bargain or just clever marketing.

Value investing is a philosophy popularised by Benjamin Graham and David Dodd in Security Analysis (1934), and it focuses on identifying companies trading below their intrinsic worth. These are the “quality goods on sale” – businesses with strong earnings, healthy cash flows, and durable business models that are temporarily overlooked by the market.

In the world of investing, metrics such as Price-to-Earnings (P/E) and Price-to-Book (P/B) are used to find these opportunities. The goal? To buy R1 worth of assets for less than R1. It’s about spotting quality before everyone else does – just like finding that hidden gem on a crowded sale rack.

South Africa: quality at a discount

When we compare South Africa to other emerging markets, it’s like walking into a store where the good brands are quietly marked down while everyone else rushes to the flashier aisles.

As shown in the chart below, South African equities (brown line) have been trading at lower prices than their emerging-market peers (blue line) for years – meaning investors are paying less for the same amount of company earnings.

Exhibit 1 | MSCI SA versus MSCI EM 12month forward P/E ratio

Source: SBG Securities. Data as at 29 October 2025 Past performance is not indicative of future performance. For illustrative purposes only.

When considering South Africa’s P/E ratio, the following graph indicates:

• MSCI South Africa (S.A.) trades at 11.1x forward earnings, compared to 14.0x for MSCI Emerging Markets (EM) – a 21% discount.
• Excluding Naspers, S.A. becomes even cheaper at 10.7x, a 23% discount.

In other words, investors are getting R1 of earnings for around 80c in South Africa – one of the biggest markdowns in global markets.

Historically, our market hasn’t been this cheap since the Asian financial crisis in the late 1990s. Among large emerging markets, only Brazil and Korea trade at lower valuations.

Exhibit 2 | MSCI EM 12month forward P/E ratio

Source: SBG Securities. Data as at 29 October 2025 Past performance is not indicative of future performance. For illustrative purposes only.

And yet, the backdrop is improving, energy supply is stabilising, infrastructure projects are slowly gaining traction, and company earnings are recovering. That sets the stage for a catch-up trade, in other words, where local stocks could start closing the gap.

Patience pays when value unlocks

Markets don’t always reward value immediately, but over time, they tend to catch up.

Since the start of 2024, South Africa has rerated by 12%, while emerging markets as a whole have gained 20% and global equities have risen 17%. When you exclude resources, our local market has only moved about 4%, suggesting more room for upside as confidence improves.

For investors, this creates an opportunity: limited downside, but strong long-term potential once sentiment turns.

The takeaway: don’t buy the hype, buy the value

In both shopping and investing, the idea of a “deal” can be deceptive. A 50% discount doesn’t automatically equal value – it just means the price tag looks smaller. Real value comes from quality, longevity, and performance. Whether you’re buying shoes or shares, if you’ve spent R10 000, you’ve still spent R10 000.

At OIG, we look past the price tag to uncover quality opportunities in South Africa and globally where fundamentals support long-term growth.

By combining disciplined research with an eye for value, we aim to help clients buy wisely, stay patient, and let time do the compounding.

In summary

• Not all discounts are deals – know what you’re buying – focus on quality.
• South Africa’s equity market remains one of the cheapest in the emerging world.
• Improving fundamentals and low valuations offer attractive long-term entry points.
• Real value takes patience – but history shows it pays off. Value investing isn’t about chasing short-term momentum – it’s about buying quality at the right price and allowing time to do the compounding.

At OIG, we help clients look past the price tag to uncover real value – in markets, portfolios, and long-term wealth creation.